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The Fallacy of Saving 










Stnos in Economics 




'Let us not confound the statement that human interests are at one with the state- 
ment that class interests are at one. The latter I believe to be as false as the 
former is true, and, moreover, to be one of those plausible optimist fallacies 
against which it especially behoves us in the present day to be on our guard." — 

C air ties 











■"•^■^^s - " 


<c The following essay is an expansion of one written 

j*- several years ago, and recently read to the Political 

* Economy Circle of the National Liberal Club. The 

character of the criticism it then met with from some 

^ of the most competent members removed any hesita- 

jD . . , 

pO tion I might formerly have felt as to the chance of 

my being right in an argument which will strike most 


,_ readers at first sight as a strange paradox, and which 


83 runs counter not only to the standard authorities, but 
to the views of many of the younger economists who 
are supposed to have thrown off the old " orthodoxy." 
The trained economists of the National Liberal Club, 
to my thinking, did not really defend the received 
economic doctrine of saving at all : they defended 



something else. And yet, while the received doctrine 
stands thus naked to criticism, I find that when a 
young economist presses the criticism he is made to 
suffer for it by exclusion from educational posts which 
are in the gift of adherents of the orthodox view. 
Having personally nothing to fear in this way, I feel 
the more bound to press the true doctrine, as I regard 
it, on public attention. I would preface my exposi- 
tion, however, with an appeal to the candour and 
leniency alike of economic students and general 
readers, in consideration of the difficulty which 
attends all rectifications of abstract theory, and 
efforts at new economic analysis in perhaps a special 

As regards the practical solution propounded in the 
Second Part, I wish it to be noted that it is evolved 
as a strict economic solution of the problem led up to 
in the First, and, though it coincides with some pro- 
posals classified as Socialistic, is no a priori applica- 
tion of any abstract theory of society, and does not 
stand or fall with any such theory. In this connec- 


tion I am glad to see that a widening hearing is being 
won for the doctrine of a naturalist as distinguished 
from an idealist treatment of social problems. This 
doctrine has been admirably put by a recent essayist, 
whose words I have as much pleasure in quoting as 
in endorsing : 

" The solution which remains to be considered, and which the 
course of the argument has gradually brought into view, is the 
doctrine of State-control or State-regulation of industry accord- 
ing to the best ideas and knowledge attainable at the time. 
This, in distinction from the others, may be called the political 
solution. It is untouched by any of the arguments that have 
been fatal to the rest. In essence, it is the doctrine that has 
been instinctively acted upon both in ancient and modern 
States. When a mistaken industrial policy was pursued in the 
past, this was not because the State failed to recognise the limits 
of its own general sphere of action, but because it was ignorant 
of some particular law of economics. The remedy is not to 
exclude as many industrial questions as possible from the sphere 
of State-action, but to gain the most accurate knowledge of the 
conditions of particular problems, and then to apply it both 
negatively and positively, and not simply for the maintenance 
of prosperity, but for the transformation of the industrial sys- 
tem itself. This does not imply State-ownership of all capital, 
which is the Socialistic solution, but it implies that no limit shall 
be recognised to the action of the State upon industry except 
the knowledge that action would be injurious to the Common- 
wealth. Where there is doubt, there may be action or abstinence 

viii PREFACE. 

from action, according to the probabilities of the case. At a 
time like the present, when the industrial system is compara- 
tively plastic, the bias ought to be in favour of action." 1 

That may be taken as the political standpoint of the 
following treatise. 

1 Art. Politics and Industry, by Thomas Whittaker, in Mac- 
miUan's Magazine for January, 1892. 


Chap. Page 







V. THE ARGUMENT OF J. S. MILL - - - - 42 










Throughout the bulk of the literature of modern 
political economy, down to recent years, there runs 
the teaching, explicit or implicit, that the practice of 
parsimony by all and sundry is the surest way to 
prosperity not only for the savers singly but for the 
community to which they belong. We have the 
doctrine very plainly stated in the late Professor 
Bonamy Price's Chapters on Practical Political 
Economy : 

" The man who saves, be he prince or peasant, is the bene- 
factor of his country; for it is capital which bestows all neces- 
saries an I all comforts, which rescues population from poverty, 
which sustains and increases their numbers. Nothing can be 
more fatal to the happiness of a people than to bring profit into 
discredit." 1 

1 Second Edition, p. 128. 

MM I \l .1. M \ I »l - WING. 

Eere, it will be aoted, the economist expresses him- 
as if all saving were made out of traders' profits ; 
but it is not to be supposed, even if he had not made 
his advice universal, that he wanted to restrict the 
practice of saving to the profit-makers. He is re- 
peating a standing- economic doctrine, which pro- 
nounces all saving by individuals to be a public 

On all. fours with this view T , of course, is the opinion 
that if only people in general would be " thrifty," in 
the sense of " saving " a good deal of their weekly or 
annual income, poverty would be sure to lessen pro- 
portionately, or even disproportionately. This is im- 
plied in Mr. Spencer's censure of the English masses 
for their " improvidence ; " his idea being, not simply 
that they tend to have more children than they can 
support, but that by not saving some of their wages 
all round they as a class throw away some of their 
bread and butter. For it is assumed, as we shall see 
in detail, by economists of most schools, that the pro- 
cess of saving money means the accumulation of 
wealth in the full sense of the term. Thus we find 
M. Leroy Beaulieu, a leading French economist, in his 
recent work on the State, remarking that "a few 
moments of imprudence," on the part of a speculative 
legatee, " may be enough to endanger, or even to 
destroy, wealth which it has taken the labour and 
pain of years, it may be of centuries, to amass." 1 M. 
Beaulieu is here evidently thinking of mere money 
accumulations, and the dispersal of such accumulations 

1 The Modem State in Relation to Society and the Individual, 
Eng. trans., p. 9. 


by bad speculations in stock. Yet even to the ordin- 
ary unscientific citizen it must surely be clear enough, 
on reflection, that all that happens is a passing of 
" claim to wealth " from one hand to others, and that 
there is no destruction of anything whatever. The 
same reflection is set up by various passages in a 
Utopistic novel — now perhaps forgotten, but display- 
ing a considerable amount of freshness of thought, 
with a good deal of old prejudice — which was pub- 
lished some nineteen years ago. The novelist, not 
content with endorsing the capitalistic form of society 
as morally good, thus discourses on economics : — 

" Capital is stored industry. As the coal-beds, to which England 
owed its greatness until their approaching exhaustion " [the novel 
is an anticipation of Looking Backward], " led to the discovery 
of something more efficient, represented millions of years of 
stored sun-power, so capital represents the accumulated toil of 

And again, in a description of a public meeting in 
the future Jerusalem, we have this : — 

" On this platform sat the Committee and a large assemblage 
of the principal members of the Stock Exchange, the heads of 
all the great mercantile houses, and the governing chiefs of 
the Jewish people. It was an assembly representative of the 
world's wealth of accumulated industry and realised property." - 

This is not the writing of a professed economist, 
but we shall see that it is largely in harmony with 

1 By and By : An Historical Romance of the Future, by 
Edward Maitland, author of The Pilgrim and the Shrine, etc., 
1873, vol. ii., p. 28. 

2 lb., p. 186. 


the teaching of many professed economists ; and it 
becomes seriously necessary to prove, though many 
readers may sec it at once, that the "accumulated 
industry" and "realised property" spoken of are 
pure chimeras. "Realised propert} 7 " in this context, 
if there is any meaning in words, should be tangible 
property — lands, or goods, or bullion, or houses, or 
cattle, or valuable objects — and not mere money- 
title. No doubt it is customary to speak of a man as 
"realising" his property when he sells it for money 
and has the price standing at his credit in his bank 
account ; and it is very suggestive of the gift of man- 
kind for conventional fiction, that a treatment of pro- 
perty which consists in getting instead of it the right to 
have certain figures marked on a banker's book should 
be called "realising," while the process of exchanging 
that right for a house is not so described. But Mr. 
Maitland's analogy about coal would be meaningless 
if he did not signify by "realised property" something 
else than the abstract money credit received for giv- 
ing away concrete property. His words point to 
genuine, useful property, as distinct from even con 
or bullion. But in the nature of the case, such pro- 
perty is not represented by the money wealth of 
investors in general. It might be argued to exist in 
the case of a railway company ; but even there the 
main part of the real wealth is the land, which is in 
no sense " accumulated industry," and the plant, which 
is always wearing away instead of accumulating, and 
represents at any given moment the product of a few 
years' industry at most. Mr. Maitland had not 
learned the lesson, accepted by John Mill from Dr. 


Chalmers, that the greater part of the existing wealth 
of any nation is produced within the current year, as 
is seen in the case of the recuperation of a country 
after a war. 1 That, however, is only part of the 
blunder. The novelist shows that he knows of the 
existence of National Debts, and implies that the 
capital of his capitalists largely consists in such 
securities. He is thus committed to saying that the 
e'ght hundred millions of English debt, notoriously 
owing for old loans spent in processes of destruction 
of wealth and life, represent so much "accumulated 
industry " and " realised property," as coal represents 
stored sunlight, capable of yielding so much heat and 
energy. This is tolerably absurd ; and yet, as we 
shall see, it cannot be taken for granted that even 
economists will admit as much. Many of them still 
reason as if the National Debt represented so much 
accumulated product of labour, so much actual 
" wealth." 

The novelist from whom I have quoted, agreeing 
with the mass of the economists in his notion of 
capital, if not in his way of expressing it, lays down 
one proposition which, as it happens, coincides with 
past economic teaching but not with present. "To 
tax capital," he says in the passage first above quoted 
from, "is to tax wages, which are paid out of capital." 
Modern economists have abandoned this view. And yet 
it is on the face of it distinctly more plausible, false as it 
is, than the formulas about the "accumulated industry " 
and "realised property" of investors' money-claims. 
" Wages " are often " paid " out of " capital." Curiously, 

1 Mill's Principles of Political Economy, B. [., Ch. v., Sec. 7. 


the economists have abandoned the plausible error 
without abandoning a correlative error which is hardly 
at all plausible to plain common-sense. They have 
all now given up the doctrine of a " wages fund," and 
yet most of them continue to speak as if saved 
"capital," that is, money-claim, were really a "fund," 
the lessening of which would be a deprivation to the 
community at large. Professor Sidgwick in his latest 
work, a careful and thoughtful treatise on politics, 
stys of a graduated income tax that " the serious objec- 
tion to such a measure lies in the danger of economic 
loss to the whole community caused by checking 
accumulation or driving capital from the country. 1 
This might be supposed to mean something different 
from Mr. Maitland's doctrine that money capital is 
"accumulated industry;" but Professor Sidgwick 
goes on to show that he too really has such an idea. 
He speaks again 2 still more explicitly of the motives 
that urge men to " produce and accumulate wealth," 
as if saving money from income meant the accumu- 
lating of that which is produced ; and of the probable 
" bad effect " 3 of a heavy tax on inheritances in 
" diminishing the inducements of prospective testators 
to industry and thrift," as if money thrift were as 
truly productive, from the point of view of the 
community, as industry. In taking up these posi- 
tions, as we shall see later, Professor Sidgwick is 
really retrograding from a much more rational 
position reached by him in his previous treatise on 
economics, so that it becomes more and more plainly 

1 Tlie Element* of Politics, p. 173. - Page 176. 

:i Page 177. 


necessary to combat the delusion to which he now 
gives countenance. 

I do not anticipate, however, that the main diffi- 
culty for most readers will be over this form of the 
"saving" fallacy, taken singly. I apprehend that 
many will readily acquiesce in my thesis that the 
saving of money from income, and the accumulation of 
credits, is merely a saving of claim to wealth ; that 
such claim is not at all represented by actual wealth 
of any sort at present prices ; that an attempt to 
exchange the whole mass of money capital or bankers' 
credits for actual property, movable or tangible, 
would so immensely raise prices as to prove clearly 
the abstract nature of the capital in question ; and 
that instead of representing <; accumulated industry," 
the mass of capital is rather a potentiality of pro- 
ducing new wealth by setting in motion future 
labour, an extremely different thing. These pro- 
positions, I think, will recommend themselves to most 
open-minded people who are not already hypnotised 
by conventional doctrines. Such readers may even, 
I imagine, be not unready to concede that, if the pro- 
duction of new wealth is thus dependent on saved 
money capital in the sense only that the proffer of 
abstract or moral claim to wealth suffices to set 
labour in motion, then labour may conceivabl}' be set 
in motion to a much greater extent without the 
intervention of saved claim-to-wealth at all. At 
least, it seems pretty obvious that if all the members 
of a small community agreed to help in production of 
some sort, doing services all round as seemed best from 
the common point of view, they might accumulate 


durable results of industry, as well as produce a 
sufficiency of the more perishable products, to an 
indefinite extent, without any individual accumula- 
tion of claim to the property and services of the 

But just here the problem may easily be obscured 
by the suggestion, offered afresh, that in a competitive 
society like ours the claim-to-wealth of the capita isf 
represents just that right to accumulated products 
which in the imagined commune society would be 
held to vest in each member equally. Though it 
before seemed clear that the saved claim-to- wealth 
was not a saved mass of products at all, it would now 
seem less clear. And even if the ordinary economists 
did not argue that saved money-claim was saved 
products ; even if Professor Sidgwick should abandon 
his plainly erroneous description of the process of 
saving, he and the others might still perplex the 
ingenuous student by using the old argument that in 
our competitive society it is " capital " (in one sense) 
that "feeds" and clothes and houses labour, and 
"capital" (in another sense) that "employs" and 
" pays " labour ; and that accordingly " capital " (in 
yet another sense) must needs be saved in great 
masses to keep our society going, and the more the 
saved capital the better it must be for the workers. 
And this is what I call the Fallacy of Saving. 

How far the fallacy rests on or is fostered by 
shifting definitions of capital, will appear in the 
course of our examination of the reigning doctrines. 
But it will be well at the outset to take note that 
while the term " capital " has in practice tende 1 more 


and more to signify in particular not plant or goods, 
but money-credit or claim on bankers' books, or claim 
in the shape of debentures, most economists have con- 
tinued to speak of it in argument as if it strictly 
signified plant and stock in trade, while tacitly em- 
ploying the term whenever convenient in the other 
sense. It is not difficult to confute the "saving'' 
doctrine in terms of the avowed definitions of capital, 
especially in the case of the earlier economists ; but 
when so confuted the maintainers of the doctrine 
have only to shift their ground in order to open the 
discussion afresh. We must accordingly hunt down 
singly the different conceptions involved. 

Equally necessary is it to go warily into the 
other side of the fallacy, namely, the notion that by 
abstaining as far as possible from consumption all 
round, people will promote industry all round. Here 
again it might seem as if the delusion were too gross 
to have any wide acceptance. Industry is a matter 
of supplying markets, and the employing class is 
always speaking of the importance of finding new 
markets. Not a few of our wars have been made at 
their instigation, to the end of forcibly opening such 
markets. And yet not only the "orthodox econo- 
mists " but this very employing class habitually reason 
on the assumption that industry depends for its 
maintenance on abstinence from consumption, that 
is, the restriction of the market demand for goods. 
They do not merely recommend such abstinence to a 
limited class as a means of providing for the future 
by securing a claim over the majority: they urge it 
on all, and habitually speak as if everybody might 


restrict consumption without restricting the employ- 
ment of labour; as if everybody might accumulate 
claim over the services of everybody else, and so 
secure all round the advantages that are enjoyed by 
the few who at present accumulate claim over the 
services of the many. This, I say, seems a sufficiently 
flagrant delusion ; and yet there can be no question 
about its vogue. Either the advocates of thrift realise 
in their hearts that the principle can only advantage 
the few as against the many, and are thus putting 
forward as a panacea what they know cannot be a 
panacea, or they are sincerely possessed b} 7 the delu- 
sion I have specified. One comes, of course, to the 
latter conclusion. That such a delusion should exist, 
is unhappily only too easily explained. Like popular 
delusions of all kinds, it rests primarily on an unen- 
lightened self-interest. A man wants to " save " in 
order to advantage himself ; and when he has gained 
his advantage he naturally wants to lay on the less 
fortunate the blame of their disadvantage. They 
might all, he argues, do as he has done. In the same 
way he instinctively wants to believe that in gaining 
his advantage he has really been benefiting the rest — 
that his saving, his non-consumption, has given them 
emploj^ment and promoted trade generally. Thus it 
comes that a doctrine almost nakedly absurd in a 
plain statement becomes the creed of a whole class, 
w r ho are able, of course, to fortify their creed by 
obscuring the issues, which are numerous and, in de- 
signing or misguided hands, complex. A doctrine 
thus resting 1 on a strongly-felt self-interest must 
obviously be hard to overthrow; and if the overthrow 


is to be accomplished at all, it must be by a systematic 
attack all along the economic line. 

I propose then, with a view to final demon- 
stration, to go methodically over the ground, track- 
ing the economic doctrine of Saving step by step 
as closely as may be in the compass of an essay that 
shall not be a " great evil." The different forms of the 
fallacy, as I regard it, are always tending to merge 
into one another as the argument is pushed against 
one or another ; and only a close analysis can dispose 
of the entire case. There are some, I hope, who will 
not refuse to be at that amount of trouble to clear up 
for themselves a problem which lies at the root of 
the great sociological issues of our time. For this is 
not an inquiry into the mere metaphysics of econo- 
mics, like some very able and indeed intellectually 
stimulating treatises of recent years, but a practical 
inquiry in the strictest sense of the term. The fallacy 
alleged and impugned is a fallacy not merely of 
speculation but of conduct — a fallacy which must, I 
think, be rectified in speculation before men will in 
any numbers make up their minds to rectify it in 
conduct, and which must be rectified in conduct before 
our social system can to any satisfying extent be 
soundly reconstructed. 



We are to examine, then, the standing economic 
doctrine that "parsimony," or " thrift," or the "sav- 
ing " of money out of income, conduces to the well- 
being not only of him who practises it, but of the 
entire community in an industrial country such as 
ours. The common ground for this belief is suffi- 
ciently obvious. It being clear that the individual 
who " saves money " acquires an advantage over his 
neighbours who do not, it is at least as natural to 
prescribe the universal adoption of his plan as it once 
was to assume that the nation with most gold and 
silver was the wealthiest nation, seeing that the man 
with most gold and silver was the wealthiest man. 
And whereas the rise of modern industry set up 
conditions that led men to look into and to challenge 
the notion that much bullion made a country rich, 
those very conditions at first tended to strengthen 
the notion that " saving " on the part of individuals 
really did tend to do so. In Adam Smith, who has 
done most to establish the belief, the bullion fallacy 
is rejected, and the doctrine of saving enforced, in the 
same pages ; just as it was in Turgot, whom he so 
closely followed in time. Smith saw that the accumu- 
lation of savings in the hands of bankers in his own 

smith's contradictions. 13 

country had, under certain conditions, promoted pro- 
duction alike of food and manufactures; and, anxious 
to justify the freeing of industry from ail restraints, 
he argued that under a free system the natural 
tendency of the majority to save money would in- 
fallibly secure endless commercial prosperity. But 
the argument, 1 in which the wish was father to the 
thought, is the most superficial and inconsistent part 
of the Wealth of Nations. 

Smith had a healthy preference for industrious 
people over idlers, and his advocacy of saving takes 
to a large extent the shape of discrediting outlay 
which maintains and multiplies " unproductive " 
people, as superfluous domestic servants, rather than 
productive artificers. The average spendthrift, he 
notes, feeds horses and dogs, idle friends and half-idle 
servants ; whereas saved money, put in the bank, 
goes to employ labourers who create objects of value 
in return for what they consume. Thus far, of course, 
the statement is perfectly just, save in so far as (a) 
the question of the desirableness of horses and dogs 
as wealth is overlooked, (/;) the question of idle living 
in general is evaded, and (c) the question is begged as 
to the destination of the money put in the bank. It 
does not seem to occur to Smith that it might be 
borrowed by a spendthrift. There remains the 
general truth that the action of the spendthrift tends 
in part to turn activity, in the case of those he em- 
ploys, in unproductive rather than in productive 

1 B. II. ch. iii. 

- Thus defined, the term, otherwise objectionable, may he 
allowed currency in the present connection. 


directions; and that he who multiplies menials is 
tending so far to limit useful industry. But even this 
general truth is not studied in its relations to other 
facts ; and it is obvious that if it be not proved that 
the money put in the bank will secure the employ- 
ment of labourers who would otherwise be unem- 
ployed, the correlative facts of the case may be such 
as to destroy the moral force even of the appeal 
against employing menials. Let us examine further. 

In taking it for granted that the money saved and 
invested will of a certainty secure the employment of 
labour, Smith was assuming that it is always pro- 
fitable for producers to extend their production ; since 
if this be not so, the money put in the bank will not 
always be borrowed. Now, in order that it shall be 
always profitable to extend production, we must ha\e 
one of two conditions : either (1) a stationary or 
nearly stationary population must be always increas- 
ing its consumption, or (2) the population must itself 
be constantly and rapidly increasing, so that the de- 
mand for necessaries is always extending. But the 
first of these alternatives is excluded by Smith's own 
argument and precept. A constant increase of con- 
sumption among a stationary population would mean 
the reverse of that parsimony on which he declares 
national prosperity to depend. He must therefore 
look, for that increasing consumption which shall 
make possible the continual increase of production, to 
the simple increase in the numbers of the people. 
That is to say, the proper and certain' destination of 
saved capital is mainly the employment of labourers 
in producing either such articles as frugal labourers 


consume, or things which facilitate the production of 

Now, Smith had alleged not only that the majority, 
at least of well-to-do people, practised saving, but that 
the more they saved the more would industry extend, 
because — and here the argument is curiously inverted 
— the wants of mankind are insatiable. He was thus 
virtually predicating, if anything, the possibility of an 
indefinitely rapid increase of population within the 
limits of biological possibility (which he knew to be 
wide), conditional only on the assiduous " saving; of 
money" by the majority. Tins very saving of money 
or income, however, had been already defined by 
Smith to be in reality a saving of products — an 
abstinence from consumption — bringing it about that 
the products abstained from were consumed by pro- 
ductive people, employed by the lending of the money 
saved. :< The consumption is the same, but the con- 
sumers are different" — i.e., useful labourers instead of 
domestics, when the saver was a member of the upper 
classes. But when the majority are productive 
labourers, who are to be the consumers of their 
savings ? Apparently the class of the babe unborn. 

Even in laying down his proposition, Smith reveals 
the fallacy of his contrast between the spender and 
the saver. The spender's " revenue, we shall suppose, 
is paid him in money. Had he spent the whole, tin- 
food, clothing, and lodging which the whole could 
have purchased, would have been distributed among " 
the "idle guests and menial servants." But by his 
saving some as capital, " the food, clothing, and 
lodging which may be purchased with it, are 


necessarily reserved" for the "labourers, manu- 
facturers, and artificers/' Now, it is very clear that 
in the latter case the process can only continue if the 
things produced by the labourers are bought ; and in 
the terms of Smith's doctrine there ought to be 
nobody to buy them, save in so far as they represent 
mere necessaries for the fresh members of the popu- 
lation. But the spendthrift provides better than any- 
body else for this mere consumption of necessaries, 
since his guests and servants must eat and will waste 
and he is thus actually facilitating for the saver the 
process of profitable production. Further, if there be 
a moral objection to his employing servants and feed- 
ing idlers, the correction of his conduct would plainly 
consist in his buying different services. "The con- 
sumption is the same.'' Then, instead of saving, he 
has only to buy chairs and tables and houses, nnd 
the right people will be fed, inasmuch as the un- 
employed menials will tend to drift into industry. 
This line, we shall find, was later actually taken by 
John Mill, without any perception that it is a sur- 
render of the case for parsimony. 

Yet again, Smith makes admissions which go to 
prove that in the end the saving and the spending 
will come to the same thing as regards capital : — 

" The effects of misconduct are often the same as those of 
prodigality. Every injudicious and unsuccessful project in 
agriculture, mines, fisheries, trade, or manufactures, tends in 
the same manner to diminish the funds destined for the main- 
tenance of productive labour." 

But if the precept of parsimony be generally acted 

smith's contradictions. 17 

on, and the saved capital be yet used to emplo} r pro- 
ductive labour, there must be unsuccess in many of 
the projects, and those which succeed will do so by 
ruining older ones. The excess of goods will not be 
bought. The extension of capital could not go on as 
proposed for a year unless the precept of parsimony 
were disregarded. 

As his unmethodical exposition goes on, Smith ap- 
parently begins to perceive that a policy of general 
parsimony would not work so well as he had at first 
assumed, though his admission is made not by a 
modification of his general statement, but by fresh 
statements inconsistent with it. He had spoken 
slightingly of the idle people ; but he had also 
prescribed a policy which, on the face of the argument, 
was to tend to multiply idle people. Were his advice 
generally taken, with the results he had predicted, 
saving would be carried on more strenuously than 
ever; and as the assumed motive to saving was the 
prospect of interest, the result in the terms of the 
case would be an ever-increasing class of people who 
lived on interest. Spending being discouraged, while 
interest continued to come in, families would be 
"endowed" in increasing numbers. Either these 
would, in accordance with average tendency, live idly 
011 their interest, or they would develop a new passion 
\'<>v industry, and by production add further to the 
mountains of savings which, as it was, they were 
accumulating year by year. If they took the former 
course, we should have, according to the thesis, the 
phenomenon of a rapidly and continually increasing 
idle class in an always increasingly industrious com- 


raunity. If the latter, we should have the no less 
remarkable phenomenon of a community in which 
production was increasingly in excess of consumption, 
the majority always producing more and more, and, 
in the terms of the case, selling their products, while, 
on the same assumptions, the same majority avoided 
buying the Increased products. 

If, on the other hand, we took only the case of the 
working-classes, ignoring the confusion of the thesis, 
the same contradiction would arise. Smith's argu- 
ment had implied, as we have seen, a constant in- 
crease of these classes. But his doctrine of parsimony 
in that case must certainly appl} r to them, since it 
asserted the necessity of saving on the part of the 
majority, if the prosperity of the country were to he 
maintained. The majority of the workers, then, 
must save. Now, as we have said, saving, according 
to Smith, was to mean a refraining from the con- 
sumption of part of the produce. When upper-class 
people saved, this abstinence meant that what they 
did not cause to be consumed unproductively would 
be consumed productively by the workers. But now 
the workers were not wholly to consume even that 
lohich teas " saved" for them to consume, such abstin- 
ence being their only way of performing the necessary 
and profitable act of saving. At this stage of the 
exposition, if not earlier, the reader will perhaps be 
disposed to abandon the thread of the argument. 
That Smith consciously carried it thus far seems im- 
probable. If it could be carried farther, the concep- 
tion arrived at would be something like this : — That 
a wise proletariat would always abstain as far as 

smith's contradictions. 19 

possible from consuming what it produced, because 
the more unconsumed products there were, the better 
it would be for trade. 

The reasonable presumption is, of course, that 
Smith never clearly saw what his proposition led to, 
an}* more than the truth which ought to be substi- 
tuted for it. In economics as in philosophy lie 
tended to evade fundamental issues, making optimistic 
assumptions where gaps had to be tilled. But his 
cautious common-sense was always supplying him 
with some saving lights ; and he does actually go on, 
in his chapter "Of the Accumulation of Capital," to 
contradict his doctrine as to the ruinousness of spend- 
ing, and the dependence of prosperity on parsimony. 
Such contradictions abound in his book. He con- 
tradicts himself on rent, on interest, and on money. 
Thus in this very chapter we have the statement that 
" the quantity of money .... must, in every coun- 
try, naturally increase as the value of the annual pro- 
duct increases;" although he had alleged only in the 
chapter before that the circulating gold and silver of 
Scotland had suffered a " great diminution " during a 
period in which the " annual produce of its land and 
labour" had " evidently been augmented." So now, 
after asserting that the spendthrift, as such, tends to 
ruin his country as well as himself, the economist not 
only concedes that "great nations" are never im- 
poverished by private "prodigality," but intimates 
that "some modes of expense, however, seem to con- 
tribute more to the growth of public opulence than 
others" Opulence is here understood as something 
different £rom capital, for the statement is that only 


parsimony adds to capital, while the complete spend- 
ing of revenue neither increases nor diminishes 
capita], though it promotes "public opulence." The 
preferable form of expenditure, we now learn, is that 
which produces good houses, furniture, and works of 
art ; and of this expenditure we are told, further, that 
it " gives Tnaintenance to a greater number of people 
than that which is employed in the most profuse hos- 
pitality." Expenditure, then, may give maintenance 
to productive labour. The whole previous drift of 
the chapter had been to the effect that the expendi- 
ture of mere revenue counted for nothing in pro- 
moting industry, and that only the increase of capital 
by parsimony was of service ; and now it appears 
that what the frugal man does by his annual saving, 
other men do by their annual outlay. There is thus 
no final security even for the doctrine that the man 
who spends his capital is " diminishing the funds 
destined for the emplojnnent of productive labour," 
since his very expenditure may confessedly give rise 
to such employment, and those to whom his money 
passes may do the same without limit. 

So deeply rooted in Smith's mind, however, was 
the faith in parsimony, that while admitting that 
certain kinds of expenditure tended to " public- 
opulence,''' he goes on to point out that, after all, " the 
expense which is laid out in durable commodities is 
favourable not only to accumulation, but to frugality." 
That is to say, when once a man has laid out a good 
deal of money on durable things, he may stop short 
and begin to " save " without seeming to lack money ; 
whereas those who have spent mainly on sport and 


hospitality rarely have the "courage to reform, till 
ruin and bankruptcy oblige them." Having spent 
enough on building and furniture and books and 
pictures, then, the model man saves his money to put 
it in the bank. To what end? His durable pos- 
sessions, we were told, added to public opulence, 
because the more good houses and furniture are made, 
the cheaper and more accessible these become. But 
now he has ceased to call for the production of these 
things ; and yet now it is that the main gain is sup- 
posed to accrue. His money is banked, and is lent 
out to producers. In the terms of the case, these are 
not the producers of furniture, and books, and pic- 
tures, for he [i.e. the whole class of frugal men] having 
ceased to buy these articles, there is so far less and 
not more demand for them, and therefore there is no 
temptation to the producers to borrow money for the 
extension of their business. The producers who 
borrow must be others. Who are they ? Hypotheti- 
cally, the producers of articles for which there is an 
increasing demand. And what are these ? All over 
the field of consumption, in the terms of the hypo- 
thesis, there is frugality, each man spending as little 
as may be. The only increase in production, then, 
will be that positively enforced by the gradual in- 
crease of population — every year a little more corn, a 
few more houses, more clothes, more furniture ; but 
no more than can be helped. Thus, on Smith's own 
prescription, the increase "I production, if there were 
to be no waste, would be in n few branches of produc- 
tion only, and would be stiictly limited by the 
normal advance in population ; whereas his pre crip- 


tion of parsimony was unqualified and unlimited, and 
implied on the face of it that there were no bounds 
to the possibility of employing saved money in pro- 
fitable production. He had laid down a general pro- 
position with no practical regard to its working out 
in detail : he had given society a quack's nostrum, 
with no other excuse than the good intentions which 
equally underlay so much of the economic and 
political quackery lie exposed. 



The final refutation of any error, most men agree, is 
the showing not merely that it is an error but how it 
came to be made ; and in the case of Smith's doctrine 
of parsimony this is not difficult. He lived in an 
industrial society, with democratic tendencies, just at 
the time when the habit of investment was admitted 
to have formed a new and important social stratum. 
His own income, after his retirement to Kirkcaldy, 
came from investments ; and it is natural that the 
investor should wish to make out that in promoting 
his own interests he is promoting those of the com- 
munity. And not only was he the first to grapple 
comprehensively with the obscure and complicated 
economics of industry, but he had the current doctrine 
of parsimony recommended to him by those very 
Physiocrats who gave him his best scientific inspira- 
tion, and whose fundamental positivism bulks so 
much more largely in his book than his refutation of 
their formal fallacies. While the Physiocrats brushed 
aside the bullion delusion, and went straight enough 
to primary truth in insisting on the pre-eminent 
importance of the exploitation of the soil, they seem 
to have tacitly or expressly accepted the immemorial 
principle of individual money-saving, without making 



any thorough inquiry as to what it was that, in in- 
dustrial societ} 7 ", was really saved by the owners of 
investments. Quesna}^, indeed, 1 has a curt caveat 
against "des epargnes steriles;" 2 but in this he 
merely condemns the locking-up of coin ; and on the 
other hand 3 he insists that rise in prices is increase of 
national wealth. And the lucid and sagacious Turgot, 
ably formulating the conclusions of his school, dis- 
tinctly identifies individual saving with the national 
accumulation of a mass of riches. In the very last 
section of his Reflexions sur la Formation et la Dis- 
tribution des Richesses he admits that, "en effet, 
presque toutes les epargnes ne se font qu'en argent," 4 
which is more explicit than the language either of 
Smith or of the later Smithians ; but the problem 
thus acknowledged is simply dismissed with the state- 
ment that while " l'accroissement annuel des capitaux 
se fait en argent," 5 " tous les entrepreneurs n'en font 
d'autre usage que de le convertir sur le champ dans 
differentes natures d'effets sur lesquels roule leur 
entreprise ; ainsi, cette argent rentre dans la circula- 
tion, et la plus grand partie des capitaux n'existent 
qu'en effets de differentes natures, comme nous l'avons 
deja explique plus haut." c Here, in the final sentence 

1 Maxime 21, Physiocrat ie, p. 17. - "Barren savings." 

3 Max. 13. 

4 "In fact, nearly all savings are made only in money." 

5 " The annual increase of capitals is made in money." 

c " All traders make no other use of it than to convert it 
immediately into effects of different kinds, with which they 
carry on their business ; thus this money re-enters circulation ; 
and the greater part of capitals only exist as effects of different 
kinds, as we hive already explained above." 


of the treatise, the doctrine of the previous part is 
suddenly and radically transformed ; and whereas we 
had been taught (§ 49) to think of a " reserve des 
-produits annuels, aceunmles pour former des capi- 
taux " x (which again was modified (§ GO) into 
" valeurs mobiliaires accumules," 2 but re-modified 
(§ 61) into " richesses mobiliaires accumulees " 3 ), we 
are now to understand that the process of saving is 
not really one of accumulation of products or riches 
at all, but the conversion of money into goods or plant 
by producers — i.e., saving is fresh production. The 
matter being thus dropped, the practical teaching of 
Turgot's treatise remains that of his 80th section, 
which is to the effect that " l'esprit d'economie dans une 
nation augmente sans cesse la somme des capitaux ; le 
luxe tend sans cesse a les de'truire" 4 — precisely the 
position taken up immediately afterwards by Smith. 

Thus led by his Physiocrat predecessors — whose 
faith he held on the points of free trade and the 
fallacy of the bullion principle — to endorse the 
popular faith in parsimony, Smith could not conceiv- 
ably have taken a more advanced view. The problem 
for his day was not that which we to-day term the 
industrial : the futility of saving as a basis of 
national prosperity could not be apparent in a society 
which had not yet tried free trade ; and the very 
confidence in liberty which inspired the protest 
against old restrictions excluded the tendency t<> 

1 " Reserve of annual products accumulated to form capitals." 
- " Accumulated movable vah 
3 ''Accumulated movable riches." 

1 "The spirit of economy in a nation augments unceasingly 
the sum of capitals ; luxury tends unceasingly to destroy them.' 


speculate on the difficulties that might arise when 
trade was free. To question the principle of parsi- 
mony and investment as a permanent provision for 
national growth would have been not merely to pro- 
pose reform, but to challenge the whole social system. 
As it was, Smith had the merit of analysing to some 
extent the facts of the case. It was something to 
have gone the length of the proposition that " that 
which is saved is consumed/' and that what money 
saving partly does is to determine how food should 
be consumed — whether employment should be given 
to footmen or to workmen. It was much better to 
have seen that, after all, " public opulence " is increased 
by an expenditure which, instead of simply multi- 
plying a proletariat labouring fur its elementary wants, 
secures durable and valuable products, and so tends 
to raise the general standards of culture and comfort. 
It would seem, after this, no great matter to have 
recognised that a policy of " public opulence " stood 
at least as well justified as one which amassed 
" capital." But the fact remains that Smith left his 
teaching divided against itself, condemning expendi- 
ture while admitting that it might promote public 
opulence, and urging non-consumption as tending 
to encourage production. What is finally to be said 
for him is that every publicist in the century had 
similarly failed to reach consistency in the face of the 
imbroglio of modern industry. Montesquieu alter- 
nately advocated luxury and frugality, freedom of 
trade and restriction ; 1 Voltaire now insisted that thu 

1 Esprit des Lois, vii. 1-7 ; xx. 22. Cp. Blanqui, Histoire de 
VEconomie Politique, ch. 36. 



outlay of the rich must always maintain the poor, 
and again desired the equalisation of fortunes j 1 and 
even Hume argues for protection as well as for free 
trade. 2 

1 L' Homme aux Quarante Ecus; D-iscov/rs a VAcaddmie; 
Ddf&nse dxt Mmidain. 

2 Essays on Balance of Trade and Jealousy of Trade. 



If Smith was excusable, however, for failure to see 
round the developing industrial problem before the 
French Revolution, the same can hardly be said for 
the economists who, coming one or two generations 
after him, failed not only to develop his argument 
but to profit by the criticism directly brought to bear 
upon it. In 1804 appeared the Earl of Lauderdale's 
Inquiry into the Nature and Origin of Public 
Wealth, which was in large part a criticism of 
Smith's doctrine of parsimony, but which also 
attacked his dogma of an invariable measure of 
value and his discrimination between productive and 
unproductive labour. On Lauderdale's own testi- 
mony x his arguments, especially as to parsimony, 
were much assailed in his own countiy, but were well 
received in France, Germany, Italy, and America ; 
and in 1819 he is found claiming that even at home 
his propositions " have gradually gained ground to 
such a degree that, in most recent publications, they 
are assumed as undisputed and uncontrovertible." 
To the reader of to-da} 7 this is puzzling ; for while 

1 Second Ed. 1819. Introd. 


certainly Smith's confusions as to value were soon 
recognised, and his (Physiocratic) division between 
productive and unproductive work soon modified, it 
does not appear from the ordinary run of economic 
literature that his doctrine of parsimony was in any 
degree departed from by his more influential suc- 
cessors. Mill indeed asserts later 1 that " there is not 
an opinion more general among mankind than this, 
that the unproductive expenditure of the rich is 
necessary to the employment of the poor ;" and he 
points to Sismondi, Malthus, and Chalmers, who had 
all argued that capital could be advantageously 
amassed only up to a certain point. But on the 
other hand, J. B. Say, James Mill, Ricardo, McCulloch, 
and Senior had all sided with Smith ; and these were 
the writers who substantially formed the orthodox 
English economics of the century, Malthus and 
Chalmers having little influence apart from the 
population cpuestion. Doubtless Lauderdale heard 
chiefly the talk of those who agreed with him ; and 
he would tend to have a good deal of not very valu- 
able support for a reason which probably told heavily 
against him in many quarters. This was his arguing 
against the proposed rapid reduction of the National 
Debt on the score that the resulting sudden appli- 
cation of millions of money to purposes of capital, and 
the withdrawal of so much revenue from ordinary 
consumption, would utterly disorganise industry. 
Nothing could be more certain; but Lauderdale, un- 
happily, never goes beyond the demonstration of the 
danger, and has the air of being well pleased to Bee 
1 Prim iples of Political Economy^ B. I., ch. v, sec. .".. 


the National Debt subsist in full for ever. Such a 
point of view might be attractive to the idle classes, 
but could never be to the majority ; and Lauderdale's 
disappearance from notice is in all probability mainly 
due to his having thus ostensibly countered one of 
the most natural instincts of a democratic and com- 
mercial community. 

Nothing, however, could be more just than his 
whole criticism of Smith. He accepts Smith's view 
of capital, and assumes with him that the process of 
saving secures the application to productive purposes, 
in the shape largely of plant, of a quantity of food 
and energy which would otherwise be turned to con- 
sumption relatively unproductive. He then adroitly 
turns against the advocates of parsimony that very 
argument of analogy from individual practice on 
which they relied so much, only making the analogy 
genuine instead of spurious. An isolated individual 
catering for his own necessities, he points out, 1 
would only waste his wealth and his energy if 
he turned to the form of capital more of his 
wealth than was needed to perform or supplant his 
necessary labour; and what was true for the isolated 
individual must be true for the total community. 
Lauderdale further lays his finger on the point which 
Smith had perceived at a late stage of his exposition, 
and which, as we have seen, reduced his teaching to 
final contradiction : 

"Parsimony does not augment opulence ; it only changes the 
direction in which the labour of a community is exerted ; and 

1 Second Ed., p. 208. 


unless we adopt an opinion which, in economical reasoning, 
seems long to have been unconsciously cherished— that capital 
exclusively forms wealth — we cannot conceal from ourselves 
that if a society, by parsimony, increases its opulence in capital, 
it inevitably must diminish its wealth in articles produced for 
consumption/' 1 

Nor did Lauderdale for a moment countenance the 
upside-down doctrine that it is the idle rich who 
" maintain " labour : he declared in terms of the 
Smithian sociology (p. 347) that " the real source of 
increasing wealth is alone to be found amongst 
farmers, manufacturers, merchants, whose habits open 
their eyes to farther means of supplanting the labour 
they perform or superintend;" 2 and he devotes an 
unanswerable chapter to refuting the assumption that 
the total of individual "riches" 3 (= nominal com- 
mand of wealth) served as a measure of the national 
wealth. But, whether it was that men would not 
believe that an earl could be a good economist, or that 
his opposition to the sinking-fund caused him to be 
ranked with those who called the National Debt a 
national blessing, Lauderdale's book passed out of 
notice in his own country, though his formula of the 
right contingencies of value i was quoted with ap- 

iPage 210. 

- In an earlier passage (p. L94) he puts it that " labour . . . 

is the great means of increasing wealth." He also points (p. 
344) to " inequality of fortune" as the "principal impediment 
to the increase of public wealth," ami strongly condemns (p. 364) 
all interference with t radc. 

'■'' This distinction between "riches" ami "wealth - ' is of 
course arbitrary, and is not followed in this essay save in ex- 
pounding Lauderdale. 

1 Worked out later, independently, in terms of the desires 


proved by Ricardo. 1 J. B. Say dismissed hiixi in a 
single flims}^ footnote, 2 summing up his thesis in the 
unintelligible proposition that " l'accumulation retire 
de la circulation des valev/rs qui seraient favorahles 
(I Vindustrie" B and refuting this by saying that " ni 
le capital productif, ni ses accroissements, ne sont 
retires de la circulation." 4 Evidently he had not 
read the book ; but his bogus refutation would settle 
the matter for France. Blanqui in his bibliography 
speaks of the Inquiry and the Earl's Considerations 
on the State of the Currency (1813) as works "encore 
estime aujourd'hui, surtout le dernier, meme apres les 
ecrits de Ricardo ; " 5 but McCulloch, who drew on 
his learning, does not criticise the Inquiry either in 
his Principles or in his Literature, merely insinua- 

of buyer and seller, by Professor Perry, as cited by Professor 
Price (Practical Political Economy, 2nd ed., p. 46). 

1 Principles, ch. 30. It is probably needless to point out 
here the formal inefficiency of Ricardo's contention, as against 
the supply and demand formula of value, that the prices of freely 
produced commodities " will ultimately depend, not on the 
state of demand or supply, but on the increased or diminished 
cost of their production/' Obviously the antithesis is only 
verbal, and the proper statement is that cost of production 
ultimately regulates supply, price being still a function of 
supply and demand, just as where supply is determined by 
hazard or by a monopolist's choice. 

2 Traite d'Econoniic Politique, 4ieme edit., i. 107. 

:; " Accumulation withdraws from circulation values which 
would be favourable to industry.'' 

i " Neither productive capital nor its augmentations are with- 
drawn from circulation." 

5 " Still esteemed to-day, especially the latter, even after the 
writings of Ricardo/' 


ting that Brougham disposed of it in the Edinbi 
Revieiv ; and Lauderdale is not so much as named in 
Cossa's Guide to the Study of Political Economy, 
though Roscher and Bohm-Bawerk cite him with a 
frequency which testifies to some study. Professor 
Ingram, again, 1 alludes to him with approbation, but 
with his usual failure to discern the economic issue. 

Brougham's criticism 2 in all probability was a means 
of discrediting Lauderdale among English economists 
and Liberals generally, 3 though he not only left the 
Earl's central position untouched but stole some of his 
thunder. The critic actually adopted without acknow- 
ledgment Lauderdale's effective attack on Smith's dis- 
crimination of " productive " and " unproductive " 
labour, just as lie adopted without acknowledgment 
Say's rebuttal 4 of Smith's assumption (on the lines of 
the Physiocrats) that only in agriculture did Nature 
assist men's efforts. These refutations were likely to 
win acceptance for the article as a whole, put forward 

1 History of Political Economy, p. 111. 

2 Edinburgh Review, July, 1804. 

8 I strongly suspect that Lauderdale's grossly adulatory dedi- 
cation of his book to the Prince of Wales did something to 
arouse distrust. 

4 Traite d'JEconomie Politique, 4ieme <klit. i. 9, 13. The Traite 
was published in 1803. Cairnes (Essays in Political Economy, 
"Bastiat," p. 328) seems to credit Ricardo with originating the 
argument. John Mill (B. I., ch. i. , sec. 2, note) thought it 
originated with his father. But as J. B. Say and MoCulloch 
have shown (Traite, i. 13 ; Principles, 2nd. ed., pp. 56, <ii">), it 
was put forward by Count di Verri last century, and later by 
Destutt de Tracy. And Lauderdale quotes (p. 109) a passage 
implying it from an anonymous writer (really Asgill) in L696. 



as they were in the reviewer's own person; and for 
many readers, no doubt, Lauderdale's book was dis- 
posed of by a critique whose strongest points were 
really derived from it. The book as a whole is de- 
preciated with every air of omniscient superiority that 
an early reviewer could assume. And yet the crit- 
icism expressly concedes the main argument of 
Lauderdale against Smith : — 

" If by accumulation our author means only too great ac- 
cumulation of stock (that is, a greater aggregation of capital by 
parsimony, than can be employed), we have only to deny the 
novelty or importance, not certainly to dispute the truth of hie 
doctrine." x 

But, as we have seen, the whole drift of Smith's 
argument had denied that there could be over- 
accumulation of capital ; and that was the prevailing 
view among his followers ; so that Brougham was de- 
preciating Lauderdale on a ground which his own 
party could not honestly take. For the rest, when 
he goes on to argue that the undue multiplication of 
" capital " by production would be just as bad as its 
multiplication by saving, because in the former case 
also it could not be " profitably employed," he falls 
into complete confusion. Lauderdale was actually 
arguing that there were necessary limits to the ac- 
cumulation of capital — that is, stock devoted to fresh 
production — and contending that what was wanted 
was not more capital but more consumption. In fine, 
Brougham's criticism, marked as it was by his usual 
hasty cleverness, as well as his usual egoism, was 

1 Revieiv as cited, p. 373. 


merely that of a lawyer. It was thus at its best on 
questions of plain analogy, where it was not original, 
and became insignificant and evasive where the pro- 
blem became vital and practical. But that is just the 
sort of criticism that commonly serves to put down an 
innovating argument among partisans glad to have it 

The argument of Malthus, again, would seem to 
have missed its mark for a similar reason. He too 
gives a forcible answer to Smith's prescription of 
parsimony. The rationale of the matter he sum- 
marises thus : — 

" National saving, considered as the means of increased pro- 
duction, is confined within much narrower limits than individual 
saving. While some individuals continue to spend, other indi- 
viduals may continue to save to a very great extent ; but the 
national saving, or the balance of produce above consumption, 
in reference to the whole mass of producers and consumers, 
must necessarily be limited by the amount which can be ad- 
vantageously employed in supplying the demand for produce ; 
and to create this demand there must be an adequate consump- 
tion either among the producers themselves, or other classes of 
consumers.' 1 1 

And he passes an irresistible criticism on the incon- 
sistency of Smith in asserting, despite his dogma of 
parsimony, that " the desire of the conveniences and 
ornaments of building, dress, equipage, and household 
furniture, seems to have no limit or certain boundary.'' 
Smith's course, he points out, " is to found a doctrine 
upon the unlimited desire of mankind to consume ; 
then to suppose this desire limited in order to save 

1 Principles of Political Economy, p. 4G7 : cp. 486. 


capital, and thus completely alter the premises; and 
}-et still to maintain that the doctrine is true." But 
while this criticism was never met, Malthus, like 
Lauderdale, passed out of notice as an economist, 
presumably because he too lent himself to the cause 
of the idle classes. His opposition to the repeal of 
the corn laws, bottomed though it avowedly was on 
his established doctrine of population, would alone 
have gone far to discredit him in the eyes of the trad- 
ing classes ; but he had further the unhappy inspira- 
tion (1) to put his case in the proposition that the 
most incontestably " unproductive " classes actually 
promoted public wealth inasmuch as they were con- 
sumers ; (2) to argue for consumption by idlers rather 
than by workers ; and (3) to insist positively that 
the National Debt was a condition of public well- 
being. 1 Malthus saw further into the social problem 

1 It is easy to see that it was not want of good feeling that 
made Malthus formulate his views so unluckily. He anxiously 
but vainly modified his more unfortunate statements. After 
ruinously arguing (p. 472) that a greatly increased consumption 
among the workers must greatly increase cost of production, and 
so diminish agriculture and commerce, and that therefore the 
idlers must do the extra consumption, he shifts his position and 
puts it (p. 489) that even if the workers might have the power 
to consume sufficiently, experience shows they have " not the 
will ; and it is to supply this will that a body of unproductive 
consumers is necessary." And he goes yet further. In the 
later redaction of his Essay (7th ed., p. 473) he even makes 
bold to declare that "it is the diffusion of luxury among the 
mass of the people, and not an excess of it in a few, that seems 
to me most advantageous both with regard to national wealth 
and national happiness. ;; And it is plainly the danger of dis- 


than the Free Traders ; but unfortunately, in his 
economics, he read it backwards. The question for 
him should have been : How could the sum of pro- 
duction be maintained while minimising the idle 
class ? He, however, read it simply thus : What would 
be the effect on production of annihilating the revenue 
of the idle class, or of causing them to invest their 
(nominal) capital otherwise than in State debt ? 
Giving the true answer to this, he went no further, 
and so figured as an advocate of national indebtedness, 
putting only a few lukewarm objections against his 
account of the benefits. Finally, as McCulloch was 
careful to point out, he was not optimistic about 
machinery ; and only in our own day has economic 
optimism on that and other matters been effectively 

And Chalmers, in his turn, frustrated himself in a 
similar fashion. Following Malthus in the main in 
general economics as he did on the population ques- 
tion, he worked out an independent refutation of the 
principle of parsimony ; and he did not fall into the 
snare of justifying the National Debt. On the con- 
trary, he advanced a telling economic argument for 
the payment of war debts out of revenue by extra 
taxation. But he must needs, on the other hand, not 
only champion primogeniture for the sake of the 
"moral and humanising effect " of a resident gentry, 
but propose 1 that the State should make a " liberal 
provision in all the branches of the public service " 

tress that makes him hesitate {PrmovpUs, \>. 485) even about 
the slow reduction of the Debt. 

On I'alil inil I'Jrintonaj, p. 1372. 

245. 1 .. 


whereby all younger sons should have places of a 
thousand a year ! " We should still have the State 
to support the younger branches ; yet not by the 
violation of its integrity, but by a more severe taxa- 
tion than our politicians of the present day [1832] 
have the courage to impose." Somehow the politicians 
of to-day are still more degenerate ; and the reverend 
gentleman's heroic politics have sunk his economics. 

One and all, the English opponents of the fallacy of 
parsimony had contrived to associate their argument 
with the doctrine that it was a good thing to multiply 
rich idlers ; Lauderdale seemingly doing it by mere 
reticence ; Mai thus and Chalmers doing it more or 
less of malice prepense. On the Continent, again, 
Sismondi's opposition to machinery seems to have had 
a similar effect in discrediting his opposition to the 
theory of parsimony. In view of the utter neglect of 
Sismondi's wisest and weightiest writing, it would in- 
deed be unwarrantable to assume that he would have 
been much more listened to had his practical prescrip- 
tion been different. Perhaps his impeachment of the 
life of blind competition was in those days too far 
wide of the average moral sense to make converts 
under any circumstances. Long before either Carlyle 
or Ruskin, and with more sanity and temperance than 
cither, he insisted in the name of political economy 
itself that man lived in society to secure his happiness 
and not to produce cotton and buttons at the lowest 
possible price. 1 Even in London, he pointed out, 2 the 
people had made for themselves public parks, and — 

1 Nouveaux Priucipes d'Ecouumie Politique, 2e, 1827, ii. 
141. - lb., p. 140. 


"les habitants ont senti que l'air pur, la promenade, la jouis- 
sance des yeux, sont aussi des produits, et que la richesse qui 
donne de la saute" et du plaisir n'est pas infructueuse." x 

Misconceived and misrepresented by his friend Say, 
he thus 2 summed up his attitude towards industrial- 
ism: — 

" Seulement j'ai pretend u que la multiplication des produits 
dtait un bien quand elle etait demandee, payee, consommee ; 
qu'elle etait un mal au contraire quand n'etant point d^mand^e, 
tout l'espoir du producteur etait d'enlever un consommatewr aux 
produits cPune i/ndusbrie ricale." .... " La consequence de nos 
institutions, de notre legislation, ayant ete" de depouiller la classe 
travaillante de toutc propriete et de toute garantie, l'avait en 
meme temps pouss^e a un travail de~sordonne, qui n'etait point 
en rapport avec la demande ou avec les moyens d'acheter, et qui 
aggravait en consequence sa misere." 3 

The general truth of this was later admitted by Mill, 
in his avowal that "hitherto it is questionable if all 
the mechanical inventions yet made have lightened 

1 " The inhabitants have felt that pure air, free walking, the 
pleasure of the eyes, are also products, and that the riches which 
give health and pleasure are not unfruitful." 

- lb., p. 462. 

3 "I have simply contended that the multiplication of pro- 
ducts was a good thing when they were demanded, paid for, 
consumed ; that, on the other hand, it was an evil when, 
not being demanded, the whole hope of the producer was to 
withdraw a consumer from the products of a rival industry." . . . 
" The upshot of our institutions, of our legislation, having been 
to despoil the working-class of all property and of all security, 
they were at the same time driven to reckleBS labour, which was 
not correlated with demand or the means of purchase, and which 
in consequence aggravated their misery." 


the day's toil of an}- human being - ." 1 But even Mill 
would not see the force of Sismondi's economic argu- 
ment against the optimistic positions ; and inasmuch 
as that went with an attitude of unscientific hostility 
to machinery, as well as with a perfectly scientific 
propaganda in favour of forms of consumption which 
machinery could not meet, Sismondi's lack of influence 
is partly intelligible, even apart from the general 
backwardness of sociology and the association of his 
doctrine with some of those of Conservatism. Enough 
that whereas the natural optimism of the Free Trade 
movement was alone sufficiently hostile to a scientific 
recognition of the possibilities of disaster under a free 
regimen; and whereas even the doctrine of Mai thus on 
population tended to be willingly ignored by the 
average Free Trader as soon as possible, despite its 
acceptance by his economists, the English writers who 
challenged optimism had further given fatal grounds 
for the belief that they were the friends of the old 
order and not of the new. Commercial opinion went 
with the optimists who were visibly democrats as 
well as Free Traders, and who endorsed the healthy 
moral instinct which formally, however illogicalry, 
condemned idle livingf. 

There was, indeed, an optimism in those days which 
had stomach for everything, bar protection; which 
was content alike with parsimony, luxury, pressure of 
population, and primogeniture. The robust McCulloch 
is the typical optimist of Laissez-faire. Defying 
Smith, he was not a whit afraid of spendthrifts : he 
endorsed Dudley North's decision that sumptuary 
1 B. IA T ., ch. iv., sec. 2. 

m'culloch's optimism. 41 

laws kept a country poor by checking ambition ; and 
he thought luxury a very good thing, as promoting 
production. 1 He also held that increase of labour de- 
pended on increase of saved capital ; 2 but then capital 
was " formed out of profit." 3 He disposed of the fear 
of insufficient saving by a Leibnitzian pre-ordained 
harmony : — " It has been wisely ordered that the 
principle which prompts to save and amass should 
be as powerful as it is advantageous."" 1 With 
Smith he decided that there would always be more 
saving than spending; 5 and, again with Smith, he 
also maintained on the contraiy 6 that nobody ever 
heard of a want of will to spend. Over-population 
he showed, with Bishop Sumner, 7 to be the basis of 
civilisation, even if it did reduce wages; 8 primogeni- 
ture promoted energy and benevolence ; 9 and even 
taxation, up to a certain point, 10 stimulated thrift and 
industry. Gluts, though certainly the results of mis- 
calculation, 11 were at the same time really caused by 
insufficient production 12 of the things which there 
was not a glut ; if there was too much of one thing, 
it only needed, as M. Say had shown, 13 more of other 
things to buy it up. Sic itur ad astra. Taken all 
round, McCulloch's optimism is a memorable pheno- 
menon. But it was to be superseded by an optimism 
a little more sympathetic, a little more discriminating, 
and, at the same time, a little more preposterous. 

1 Principles, 2nd ed., pp. 515-523. 
2 Pages 515-534. ° Page 185. 10 Pages 113-llt>. 

■■ Page 11G. ■ Pages 225-230. ll Page 203. 

* Page 112. » Page 484. 1 - Page 185. 

5 Pa<'e 535. •' Pages 259-260. 1:; Page 201. 



I have said that the wish was father to the thought 
when Adam Smith urged that the man who saved 
money for investment could not fail to benefit his 
fellows. No other explanation can suffice for the 
strange energy of error which inspired John Mill's 
" Fundamental Propositions Respecting Capital." 1 In 
so far as that chapter is an explicit statement of the 
wage fund theory, he of course abandoned it later ; 
but no excision of a subsidiary doctrine can save from 
decomposition the deplorable tissue of fallacy which 
he thought fit to dub fundamental. The great defect 
of Mill's great quality of open-mindedness was always 
laxity of hold on the parts of a thesis ; a laxity which 
made possible to him strokes of self-contradiction not 
to be paralleled outside of the works of Mr. Ruskin. 
His father, on whose strength of conviction some 
think the son's catholicity an improvement, was in- 
capable of these astonishing self-stultifications — of 
saying in one section 2 that a socialistic adjustment of 
work to individual faculty is quite possible, and in the 
next that the supposition is " almost too chimerical to 
be reasoned against ; " of saying in the proem that the 
laws of distribution, unlike those of production, are 

1 Principles, B. I., ch. v. - B. II., ch. i., sec. 3. 



" partly of human institution," and in the beginning 
of the second book that distribution is " a matter of 
human institution solely." These and other vacilla- 
tions have been exclaimed against by critics friendly 
enough to Mill ; but nobody, I think, has yet done 
full justice to the indescribable see-saw of the " Funda- 
mental Propositions." Nobody, perhaps, ever will ; 
there is nothing in non-theological literature to com- 
pare with it. 

The applications of the idea of capital are prepared 
for by the previous chapter on capital itself. In the 
first section of that we learn that " whatever things 
.... are destined to supply productive labour with 
.... requisites, are capital." Then we have the 
statement that a capitalist who has nothing but iron 
goods can, by a " mere change of the destination of 
those iron goods, cause labourers to be fed," — the 
meaning really being that with a portion of the pro- 
ceeds he can pay wages to extra workpeople. Here, 
too, we have the proposition that capital exists as 
such by virtue of the owner's intention to use it as 
capital, an admission that a nation's capital may 
fluctuate greatly from day to day ; which was al- 
ready a surrender of the wage-fund theory. Then 
we have the explanation that " all funds from which 
the possessor derives an income .... are to him 
equivalent to capital ; " but what is capital to him is 
not capital to the nation. And yet, after all, we have 
this illustration. A capitalist, A., lends on mortgage 
£10,000 ["property of the value of £10,000," is the 
desperate phrase by which the argument is sought to 
be bolstered up] to C, a spendthrift landlord, who 

-14 tin: fallacy of saving. 

lays it out on " equipages and entertainments," — the 
good old Smithian illustration. Then, when it is 
spent, A. is " as rich as before .... he has a lien on 
the land, which he could still sell for" his £10,000 ; 
but C. is £10,000 poorer, "and nobody is richer." 
This, though, the nominal command of that £10,000, 
which was all that A. parted with and all that C. lost, 
was, in the terms of the case, transferred to other 
people ! Of course nothing even of the " equipages " 
is left: all "unproductive" spending, doubtless, is 
" unproductive," but for these arguments you are 
farther to assume that the spending man is an or- 
ganism who makes a clean sweep of all he buys. In 
the " fundamental " chapter (§ 5) we definitely learn 
that not only his equipage but his furniture is invari- 
ably " destroyed without return." 

In the first section of that chapter we have the 
implicit proposition that when legislators by their 
laws contrive that any portion of the capital of the 
country be emploj^ed in a new industry, that capital 
" must have been withdrawn or withheld from some 
other " industry. This is one contradiction of the 
previous dictum that capital as such comes into 
existence when a man decides to use as capital what 
he might have spent as revenue. But the contradic- 
tion is promptly recontradicted in the second section, 
which assures us that not only can capital increase in 
productive power, but " increased returns " hold out 
an " additional temptation to the conversion of funds 
from an unproductive destination to a productive " — 
which is another denial of the wage-fund theoiy. 
Thus is economics made at once a terror to leuislator 

J. s. mill's argument. 45 

who create new industries, and a comfort to civilians 
who want them. And yet the legislator in turn is 
informed that he may " lay on taxes and employ the 
amount productively " ! The reeling intelligence is, 
however, supported at this point by the quick adden- 
dum that the legislator may " do what is nearly 
equivalent" — he may tax income or expenditure and 
pay off some of the public debt ; in which case the 
amount paid off will be capital, necessarily to be in- 
vested — to produce the goods the investor could no 
longer afford to buy. 

The first Fundamental Proposition had been " that 
industry is limited by capital." In the second section 
it is explained that " we are not, however, to infer that 
it always reaches that limit. Capital may be tem- 
porarily unemployed, as in the case of unsold goods, 
or funds that have not yet found an investment. ' 
That is to say, in the case of the goods, lack of demand 
for the time limits industry. But this contradiction 
mustof necessity be contradicted, so in the third section 
we attain the conclusion that the "limit of wealth" 
[which please to read as = industry] "is never deficiency 
of consumers, but of producers and productive power. 
Every addition to capital" [including unsold goods or 
money that cannot find an investment] "gives to 
labour either additional employment or additional 
remuneration." And this how ? The goods remained 
unsold; yes; "but this is seeing only one half of the 
matter." "The whole of what was previously ex- 
pended in luxuries, by capitalists and landlords, is 
distributed among the existing labourers iti the form 
of additional wages" — that is to say, in employing 


labourers to make unsaleable goods, which is so much 
more beneficent a process than encouraging the con- 
tinued employment of those who produce the 
" luxuries," now also unsaleable. And if you are not 
impressed, you must try and assume, as does Mill 
here, that luxuries are made by nobody. 

After this the fun grows fast and furious. The 
cause at stake being that of saving, it becomes a 
fundamental proposition that only by saving can you 
have capital. There arises the random hypothesis 
that without consuming less, nay, even while consum- 
ing more, you may produce still more; but "never- 
theless there is here an increase of saving in the 
scientific sense. Though there is more consume J, 
there is also more spared. There is a greater excess 
of production over consumption .... We must not 
allow T ourselves to be so much the slaves of words as 
to be unable to use the word saving in this sense." 
In fact, if you will, there had been no great difference 
of doctrine between Smith and Lauderdale. 

Two fundamentals being thus secured, we reach a 
third — that capital, though saved, is nevertheless 
consumed — the formula of Smith. And whereas that 
might be too difficult a conception to " the vulgar," 
whose eye follows all savings "into an imaginary 
strong-box," we have a further interesting demonstra 
tion that what is consumed is saved. As thus. The 
spending man, that suicidal materialist, effects " a 
consumption, that is to say, a destruction, of wines, 
equipages, and furniture." But while the destroyer 
has been implacably conducting his daily bonfire, 
" the saving person, during the whole time that the 

J. s. mill's argument. 47 

destruction was going on, has had labourers at work 
repairing it ; who are ultimately found to have re- 
placed, with an increase, the equivalent of what has 
been consumed." The beneficent task of this estimable 
person is thus the production of fresh wines, equipages, 
and furniture, for the (so to speak) annihilist spend- 
thrift to destroy. But as it appears on reflection that 
from this point of view the moral merits of the spender 
and the saver are not sufficiently differentiated, the 
economist, candidly admitting that the pabulum of 
the spendthrift " could not in any case have been 
applied to the support of labour" (which contemns 
wines, shuns equipages, and distrusts furniture), pro- 
ceeds to explain that for a change we may produce 
something else. Since the wine, furniture, and equip- 
ages " continue to be produced as long as there are 
consumers for them, and are produced in increased 
quantity to meet an increased demand," why, it is the 
man who demands things who is really responsible 
for their being produced. On which comparatively 
commonplace proposition (which, as we shall see, is in 
flat contradiction to the fourth Fundamental Pro- 
position) there follow some remarks to the effect that 
structures not intended for productive purposes, such 
as Westminster Abbey, sometimes last very long, 
while it does not pay to make durable factories ; a 
truth set forth not so much to encourage saving, 
which rather runs to factories, as to show more fully 
that most things that are saved are consumed. 

It is after an interval of agreement, as to taxation, 
with the original but questionable Chalmers, that we 
reach Mill's fourth and last Fundamental Proposition 


Concerning Capital, "which is, perhaps, of toner over- 
looked or misconceived than any of the foregoing.'' 
This proposition is that " Demand for commodities is 
not demand for labour." That is to say, " The de- 
mand for commodities determines in what particular 
branch of production the labour and capital shall be 
employed; it determines the direction of the labour; 
but not the more or less of the labour itself, or of the 
maintenance or payment of the labour. These depend 
on the amount of the capital or other funds directly 
devoted to the sustenance and remuneration of labour/' 
Now, we had previously agreed that there was such a 
thing as "additional temptation to the conversion of 
funds from an unproductive destination to a produc- 
tive " ; and it might be thought that a demand for 
more goods would constitute such a temptation ; but 
we have since changed all that. The task now r is to 
show that mere fresh demand can never extend in- 
dustry, since the human faculty of demand is a strictly 
limited quantity, though it can perhaps be expanded 
when saved capital creates supply. To be sure, there 
is an admission at the other end of the book 1 that 
" restoration of confidence " may revive trade from 
collapse ; but we are a long w r ay from that chapter at 
present ; and the creed of the moment is investment, 
not expenditure. If, then, you elect to demand one 
thing, you must go without another; and if, perad- 
venture, you used to save money and are now minded 
to spend it, you still do not call for fresh labour, but 
only turn labour from other things to do what you 
want. It w T ould follow on this that wdien, instead of 

1 B. III. ch. xiv., sec. 4. 


spending your money on products, you lend it to a 
manufacturer, there happens just the same thing — 
you cause labour to be drawn from one branch to 
another. But this altogether too simple equation 
would give no special moral encouragement to saving, 
so it becomes necessary to substitute for it an extended 
process of reasoning, in which, haply, things may come 
to look different. 

To begin with, then, let us suppose that there is a 
demand for velvet, but no capital to make it ; then no 
velvet will be made. So much for that. The pro- 
position is meaningless, but no matter. Let us sup 
pose next that there is plenty of capital but no demand, 
then, again, no velvet will be made. But in this case 
manufacturers and labourers will either produce some- 
thing that is in demand, " or if there be no other de- 
mand, they themselves have one, and can produce the 
things which they want for their own consumption " 
— velvet-makers and others having happily always 
this resource in dull times. " So that the employment 
afforded to labour does not depend on the purchasers, 
but on the capital." Q. E. D. ! 

At this stage it is thoughtfully admitted by Mill, 
that if a demand for a commodity suddenly ceases 
after it is produced, the' capital employed is lost. But 
wo are not to suppose that this is merely for lack of 
demand for the commodity. " The employment which 
[the capital] gave to labour is at an end, not because 
there is no longer a demand, but because there is no 
longer a capital." In other words, when you arc 
shivering, with coals and sticks in your grate which 
you have no means of lighting, the trouble is not that 


you have no paper and matches, but that you have no 
fire. The student may here inconsiderately suggest 
that if demand set in anew it would create afresh that 
evanished capital — but — revenons a nos moutons. 
" This case does not test the principle. The proper 
test is to suppose that the change is gradual and fore- 
seen " — in fact, if you will have it so, it is perhaps 
better not to stop your velvet-buying all at once, lest 
by stopping demand you destroy capital and dis- 
employ labour. But that is not the point : the point 
is saving. 

A flood of light being thus already shed on the 
subject, we proceed to suppose the case of a consumer 
at the parting of the wa} 7 s, as it were, hesitating 
whether to hire bricklayers to build, or " excavators 
to dig artificial lakes," or simply to buy velvet and lace, 
obeying the fatal bias of the typical spender to these 
articles. On one side beams the voluptuous velvet 
(we do not dally over the lace) ; on the other beckons 
the tawny bricklayer, the more sophisticated lake- 
excavator being on second thoughts kept out of sight, 
so as not to complicate the problem. Now, observe 
the difference. If the consumer casts the fatal die for 
velvet, " he does not employ labourers ; but merely 
decides in what kind of work some other person shall 
employ them. The consumer does not with his own 
funds pay to the weavers and lacemakers their day's 
wages." Let there be no mistake about that. And 
now suppose after all that he had previously been in 
the " habit " of " hiring journeymen bricklayers," and 
see the fatal result ! He calls for velvet, but where is 
the capital to make it ? Alas ! all old dreams of fresh 

J. s. mill's argument. 5 1 

savings notwithstanding, the capital can only come 
from those concerns which formerly provided food for 
the now forsaken bricklayers — such being the natural 
and inevitable course of commerce ! " There was 
capital in existence to do one of two things — to make 
the velvet, or to produce necessaries for the journey- 
men bricklayers, but not to do both." Here, perhaps, 
the inquiring mind pauses to raise this problem : If 
the capital of the bricklayers' provision-dealers is thus 
inevitably transferred to the making of velvet, what 
is to become next of the new velvet-makers, to feed 
whom there is no capital left, though they are earning 
wages ? And what if, after all, the bricklayers them- 
selves, taking a leaf from the book of their whilom 
grocers and bakers, went to work in the velvet-factory ? 
The fundamental exposition saith not — though to be 
sure we had heard that demand for commodities did 
transfer labour from one task to another. 

Rather we turn to this other pleasing hypothesis. 
Suppose the slave of velvet " resolves to discontinue 
that expense, and to employ the same annual sum in 
hiring bricklayers." Now observe the beneficent 
change. The velvet-manufacturer "sets at liberty " a 
portion of his capital — he naturally would ! — and 
whereas the reformed consumer is now employing 
bricklayers with one fund, the versatile manufacturer 
has a " second fund " free to employ more labour with. 
Your velvet-maker is thus ready for whatever may 
turn up. So " there is a new employment created for 
bricklayers, and a transfer of employment from velvet- 
makers to some other labourers, most probably those 
whu produce the food ami other things which the 


bricklayers consume." To the harmonious adoption 
of this view, there are necessary only three concessions. 
You have (1) merely to assume, for peace" sake that 
no capital had ever been employed in producing fund 
for the velvet-makers ; (2) you are to blot the dis- 
missed velvet-makers from the book of your re- 
membrance; and (3) you are not to go back on old 
discussions and ask how the velvet-manufacturer 
contrives to " set free " the capital embodied in the 
velvet which he cannot sell. With these trifling 
adjustments, the argument for hiring bricklayers 
versus buying velvet is complete. As for the doctrine 
of saving and investment, that must for the present be 
left to shift for itself ; because there is the drawback 
that the mere investor does not pay wages with his 
own hands : he only enables other people to pay them 
as the merest velvet-buyer might do. 

That is to say, Mill's attempt to vindicate the 
principle of parsimony has ended in negating it. 
Smith counselled us to save money in order to invest, 
or produce goods for sale. Mill, carrying Smith's 
confu-ion further, ends by counselling us to spend 
directly in wages, on the score that only by such 
expenditure can we really " employ labour." The 
argument that " capital is the result of saving " comes 
to absolutely nothing, for the money saved to be ex- 
pended is no more capital than any other money 
spent in ordinary course. It is spent without profit. 
The statement that saving enriches, and spending im- 
poverishes, the individual along with the community, 
comes to nothing, for in the end it is sheer spending 
that is prescribed. 

j. s. mill's argument. 53 

The upshot of this precious demonstration is worthy 
of the steps. Desiring to help the working-classes, 
you have hired them to make a house you do not wa nt, 
and which you are not to sell. You are not to sell 
it, for the reason for which you were not to buy it. 
" A demand delayed until the work is completed . . . 
contributes nothing to the demand for labour ; and 
that which is so expended is, in all its effects, so far as 
regards the employment of the labouring classes, a 
mere nullity." On that ground } 7 ou did not try to 
buy a house ready-made, or even to order one ; and 
would you then encourage anyone else to take the 
nugatory course which you avoided ? No : there is 
your house; there are the fed and clothed bricklayers; 
and if you would continue your beneficent course } t ou 
have only to set them building another useless house, 
or, perhaps, for a change, digging an artificial lake. 
That, too, must be made for no ulterior purpose. 
There was no outside demand for the house you have 
built ; if there had been, the bricklayers would have 
been employed by a builder, without your personal 
intervention. But " when there is no demand for 
houses, no houses will be made," so that you yourself 
had to make demand for the house you built, after all 
that argumentation about the futility of demand. 
Only, you were to take the work of hiring the men, 
instead of letting a master-builder hire them for you. 
And it is to this that the argument for savin" - and 
investment comes in the hands of the economist who 
professes most elaborately to establish it; the saving 
and investment are finally to consist in sinking 
capital in personally employing men to build houses 


not destined for consumption. And the whole econo- 
mic upshot, as has been remarked by Mr. R. S. Moffat, 
is to indicate a preference for bricks over velvet. 1 

Nor is this all. I have commented elsewhere 2 on 
the fashion in which Mill here keeps out of sight in 
his " Fundamental Propositions " what he elsewhere 
recognises 3 as a fundamental truth in social affairs — 
the impossibility of providing genuine labour or even 
food for all, unless there is a restraint on the number 
born. He does, indeed, put it i that on his plan 
workers may always be employed while there is 
" food to feed them ; " but he does not offer the least 
hint that the continuous employment of unskilled 
and slightly skilled labour would soon carry popula- 
tion to a point at which there would not be food to 
feed it. He puts forward his unhappy demonstration 

1 Tlie Economy of Consumption : An Omitted Chapter in 
Political Economy, 1878, p. 90. This able writer, who has pro- 
duced one of the most oi'iginal books in recent English economics, 
an effective criticism of the parsimony fallacy in general, and 
Mill's fallacies in particular, illustrates afresh the strange fatality 
which pursues the opponents of the doctrine of universal saving. 
Like Malthus and Chalmers, if not like Lauderdale, he undoes 
his work by ranking himself on the side of privilege. He can 
smile at Chalmers' plan for endowing younger sons; but he himself 
arrives (p. 376) at the doctrine that landlords are at once neces- 
sary and advantageous, "that rent is inseparable from the duties 
of proprietorship; that it is the price paid for the performance 
of these duties; and that a rent is thus a part of the natural 
cost of production." In the face of this perversity I can but 
speculate as to whether I in turn part company somewhere with 
scientific politics and universal ethics. 

- Modern Humanists, p. 99. 3 B. II., ch. xii., sec. 2. 

4 B. I., ch. v., sec. 3. 

J. s. mill's argument. 55 

as if it were a real solution of the industrial problem, 
and only takes into account the population difficulty 
in another chapter, for the purpose of rebutting the 
demands of the Socialists who want State-provided 
employment for all. Individ ludly -provided employ- 
ment is represented as involving no such drawback. 
No doubt he tended to see things differently in his 
latter years, but there the old fallacy stands in his 
book, unretracted. Like Smith, he went on adding 
new views to old without reducing them to agree- 
ment ; and there is scarcely a proposition in his argu- 
ment on Saving that is not explicitly gainsaid by 
others, in the same chapter or later. Thus, after all 
his insistence on the destructiveness of the spend- 
thrift, he adds a footnote admitting that there is a 
" compensation, more or less ample," in the fact that 
spendthrifts " do not usually succeed in consuming all 
they spend" (sic); and this note ends with a refer- 
ence to " that part of the Fourth Book which treats 
of the limiting lyrinciple to the accitmidation of 
capitcd" — a principle which he has just been ex- 
pressly refusing to accept. The upshot is that the 
denial stands as part of the Fundamental Propositions, 
while the truth is recognised at the other end of the 
book; and even the glimpse of the rationale of spend- 
ing does not prevent a repetition of the dogma of 
parsimony in the same note. The confusion is hope- 



After the foregoing it matters little that Mill goes on 
to supply half-a-dozen more self-stultifications on 
points of detail, admitting now that to manufacturers 
" a falling off in the demand is a real loss ; " and that, 
after all, " an increased demand for a commodity does 
really .... often cause a greater employment to be 
given to labour by the same capital" These fresh 
collapses make the infirmity of the writer a little 
more abundantly manifest : they cannot heighten the 
ineptitude of the general argument. And yet that 
tissue of childish sophistry constitutes to this day the 
orthodox economic teaching on the subject. Mill's 
unquestionable good faith, with the contagion of 
optimism which had bewitched him, sufficed to blind 
men to the abject absurdity of his reasoning. I can- 
not agree with the late Professor Jevons that the 
economics of Ricardo is a substantially unsound 
system, which, by the help of Mill and his followers, 
has overridden a substantially sound economics set 
forth by Malthus and Senior ; but I am bound to de- 
clare that on this one question of saving fallacy has 
pushed aside science. 1 So far as economics has been 

1 Jevons himself is on the wrong side. He laid down the 
doctrine of universal saving in the most absolute terms (Primer 



studied among us, Mill lias been the leading authority 
down to the other day ; and the popular Fawcett is a 
recapitulation of Mill. 

Mr. Leslie Stephen has remarked that " Hitherto it 
may be roughly said that the advantages gained [from 
the study of political economy] have consisted rather 
in clearing away old errors than in discovering new 
truths — so far as these processes can be separated." l 
The latter words are suggestive of an imperfect appre- 
hension on the writer's part of the truth he seeks to 
expound ; and the suspicion here set up is more than 
justified when, a little farther on, we have from him 
this deliverance : — 

"Beneath the fallacy of the balance of trade and the identi- 
fication of money and wealth 2 lay another fallacy, apparently 
more transparent, and yet so obstinately persistent that its roots 
must clearly strike very deep in the minds of most observers. 
The fallacy is that which was made celebrated by Mandeville, 
and the complete confutation of which lies in the doctrine — so 

of Political Economy, pp. 45, 84-G) without once asking how all 
the savings could be profitably applied, though he put it for- 
ward (p. 133) as a reason why it was absurd for a nation to 
accumulate gold and silver that there is "a loss of interest upon 
their value." That is itself an old fallacy; but the doctrine 
might have set him reflecting upon the excessive accumulation 
of money-credits. In his Theory of Political Economy, however, 
he exhausted his powers over purely theoretic reforms withoul 
coming in sight of the practical fallacy of saving. In the Primer 
he appears to follow Cairnes. 

1 History of English Thought in the Eighteenth Century, ii., 285. 

2 Mr. .Stephen is not clear about the existence of this fallacy, 
even in the work quoted from (cp. pp. 287, 289); and in a later 
composition he almost denies that it ever existed (Fortnightly 
R new, -May, 1880, p. 689). 


rarely understood that its complete apprehension is, perhaps, 
the best test of a sound economist — that demand for com- 
modities is not demand for labour." x 

Of this doctrine, recognised to be so elusive, Mr. 
Stephen makes no exposition ; and we can only sur- 
mise that he adopted his conviction second-hand from 
his friend Fawcett, who had dutifully taken it from 
Mill, and who so far outwent his master that, like 
Cairnes, he declined to give up the wage-fund theory 
when Mill did, continuing to hold it in its crudest 
form, however, 2 while Cairnes reduced it to the 
" arithmetical truism presented as an economic law/' 
which might equally have evoked the derision of Marx. 

But an abler economist than Fawcett, the clear and 
careful Professor Sidgwick, takes the distressing 
course of avowing that Mill's doctrine of demand for 
commodities not being demand for labour " is, I 
believe, perfectly true when properly explained," 3 
when, in point of fact, the " proper explanation '' in his 
own hands becomes either a truism or a quibble, as 
you may happen to regard it. He ends by "granting 
it to be substantially true that the consumers of 
luxuries do not ' demand labour ' in Mill's sense, i.e., do 
not supply the real wages of the labourers who 'pro- 
duce the luxuries " bought by that particular act of 
demand. And while on the one hand reducing the 
" truth " in Mill's laborious argument to this com- 
plexion, after stating that Mill's argument in support 
of his formula " appears to me to a great extent sound," 

1 lb., p. 297. 

2 Manual of Political Economy, B. II., ch. iv. 

3 Principles of Political Economy, B. I., ch. v. Note at end. 


he notes: "I think, however, that it is all in form 
unsatisfactory ;" and " I think that a part of the argu- 
ment — that which compares the effects of a purchase 
of luxuries in a shop with the employment of labourers 
to produce luxuries — is quite erroneously stated." 
What Professor Sidgwick here calls a part of the 
argument is really its essence. But even if he had 
exposed Mill's fallacy with that explicitness which 
his conscientiousness seems to make so difficult to him, 
it would avail little against the reigning cult. Mill's 
and Fawcett's are still the current manuals. 

The same comment is applicable to the latest and most 
magistral English treatment of Mill's Fundamental 
Propositions. In his ripely considered Principles of 
Economics, Professor A. Marshall puts forward a view 
of Mill's doctrine which, while apparently expressly 
framed to give the most reasonable sense to his 
Fundamental Propositions, ends by reducing them to 
nullity. Professor Marshall admits l that the state- 
ment that industry is limited by capital is " an awk- 
ward and unfortunate sentence ; " and in examining 
it later 2 he says that it "has been applied for many 
purposes," and that Mill himself " chiefly " used it to 
show that protective duties cannot increase the total 
employment of labour. Professor Marshall offers no 
further defence. " This first Fundamental Proposition 
of Mill's," he continues, "is closely connected with his 
fourth, viz., that Demand for commodities is not 
demand for labour, and (his again expresses his mean- 
ing badly." That is to say, Professor Marshall tries 

1 Isted., p. 138 ; 2nd ed., p. 133. 

2 1st ed., pp. 5G'J, 570 ; 2nd ed., pp. 575, 570. 


to find a better meaning for Mill's words than lie 
ostensibly meant to give them. It is thus suggested: 

" It will l»e found that in every instance in which he has 
chosen to illustrate the doctrine, his arguments imply, though he 
does not seem to be awewt of it, that the consumer when passing 
from purchasing commodities to hiring labour, postpones the 
date of his own consumption of the fruits of labour. It is this 
postponement, this waiting, that in Mill's illustrative instances 
really increases the capital ready to aid and support labour ; and 
therefore increases the effective demand for labour. And the 
same postponement would have resulted in the same benefit to 
labour if the purchaser had made no change in the mode of his 

Here an attempt is made to minimise the absurdity 
of Mill's argument, yet even thus it is admittedly 
nugatory. I have only to add that Professor Mar- 
shall, in putting the best form on the fallacy, himself 
makes an unwarranted statement. He gives no proof 
for the assertion that the postponement of consump- 
tion of what is made "increases the effective demand 
for labour." He too, in turn, has forgotten the " vel- 
vet-makers," who in the terms of Mill's case will be 
either unemployed or half-employed when the em- 
ployer finds a falling-off in the demand for his pro- 
ducts. Thus Professor Marshall does not finally take 
note of the fundamental fallacy of all four of Mill's 
propositions ; and the doctrine of saving is left in 
command of the field. Every British student of 
economics is still shown the folly of the young noble- 
man who bought eighteen waistcoats to help trade, 
instead of lending money to the tailor to make un- 
saleable waistcoats, or lay in superfluous cloth. 


And one of the most respected of English econo- 
mists since Mill, Professor Cairnes, who had the 
merit of repudiating the old laissez-faire optimism 
and dealing frankly with the political side of econo- 
mics in the light of his knowledge, has stood sted- 
fastly to the old faith on saving. 

"I take it to be a fundamental and indispensable condition 
of all progressive human society, that by some means or other a 
large aggregate capital available for its recpuirements should be 
provided. Without such a fund, accumulated from the 'products 
of past toil, division of labour and continuous industry are im- 
possible ; population cannot attain the degree of density in- 
dispensable to civilised existence ; nor can that amount of 
leisure from physical toil be secured for any considerable por- 
tion of the people which is required for the cultivation of 
science and literature." 1 

Professor Cairnes, though here pointing to social 
arrangements which might obviously be set up on 
other lines than that of money-saving, could not con- 
ceive that the special process of " sacrifice " which he 
saw in " saving " might be enforced in a socialised 
•State by mere " benevolence and public spirit," and 
accordingly decided on that ground against Socialism. 
He was positive that " capital can only be created by 
saving," and accordingly declared : " If then the 
labourer is to emerge from his present position and 
become a sharer in the gains of capital, he must in 
the first instance learn to save." 2 That is to say, 
there may be universal saving, with gain all round — 
the old doctrine in its wildest form. It is nothing to 

1 >s'o)//< Leading Prmciples <>f Politicoii /vo/km/m/, ed. L884, p. 
271. - lb., p. 287. 


the purpose that Cairnes points to the money-claim 
wasted annually by the workers on drink ; for if that 
money were saved it would do nothing for the dis- 
tillers' and brewers' men thrown idle. Only fresh 
consumption could provide employment for them, 
and no provision is made in the argument for such 
fresh consumption. Cairnes, with all his sincerity 
and aspiration, was but helplessly repeating the old 
shibboleth, having done nothing to analyse afresh the 
special problem involved. He did, indeed, repudiate 
the notion that the idle rich class conferred a public 
benefit : — 

" It is important, on moral no less than on economic grounds, 
to insist upon this, that no public benefit of any kind arises from 
the existence of an idle rich class. The wealth accumulated by 
their ancestors and others on their behalf, where it is employed 
as capital, no doubt helps to sustain industry ; but what they 
consume in idleness and luxury is not capital, and helps to sus- 
tain nothing but their own unprofitable lives. By all means 
they must have their rents and interest, as it is written in the 
bond ; but let them take their proper place as drones in the 
hive, gorging at a feast to which they have contributed no- 
thing." 1 

Here, however, the moral outburst counts for no- 
thing in view of the economic doctrine ; inasmuch as 
Cairnes goes on to insist that the only way to keep 
industry going is to reward the drones for their or 
their ancestors' act of saving, which he pronounces 
all-essential. Naturally, the average man pays little 
heed to a diatribe thus countervailed by its author's 
own admissions. Cairnes had, indeed, on his own 

1 Page 35. 


showing, no right to say that the idle rich " con- 
tributed nothing : " he expressly credited them with 
" sustaining industry " by their capital. His net pre- 
scription thus came to this, that in order to be wholly 
admirable, the capitalists had only to go on accumu- 
lating capital unceasingly while living as frugally as 
possible. It would, on his own principles, avail them 
no more to spend money on public objects than to 
spend it on private, since industry is only " sustained " 
by the productive employment of capital. Thus, 
Cairnes's economic advice to his generation, despite 
the entire wisdom of such a negative proposition as 
that quoted on our title-page, was finally futile, 
amounting to the old counsel to produce without con- 
suming, to sell without buying. 

As against Cairnes's fling at the idle rich, again, the 
other economists of the same succession have haloed 
the interest-drawing class with an earned or imputed 
sanctification in respect of the " abstinence " which bad 
to be practised to secure the creation of their capital 
to start with. And this, which is the older ethical 
sentiment, 1 is naturally the more popular with the 
interest-drawing class, who can meet Cairnes's attack 

1 Professor Bbhm-Bawerk (Capital ami Interest, Smart's 
trans., B. IV., ch. i., p. 209), following Marx (Capital, I., ch. 
xxix., sec. 3), speaks of Senior as the founder of the abstinence 
theory. But, as Bbhm-Bawerk notes,it was put by Poulett Scrope 
(Principles of Pol. Ec, 1833, p. 140) before Senior published his 
treatise ; and it was explicitly laid down long before either by 
Petty, who described interest as "a reward tor forbearing the 
use of your own money for a term of time agreed upon ,; (Quan- 
tulumcumqiic, cited by Lauderdale, p. 152). No dcubt Senior gave 
the doctrine its currency. (Jp. Marx, B. I.,ch. ix., sec. 3, note. 


with his own endorsement of the abstinence prin- 
ciple — a conception still so attractive that it finds 
favour with Professor Bohm-Bawerk, who, by way of 
confuting those who insist that a purely negative act 
can count for nothing as an aid to production, skil- 
fully cites in support 1 of it the very citation from 
Spinoza which Marx 2 employed to show that any act 
may be regarded as an abstinence from its contrary. 
Of course, the common interpretation of Senior is a 
trifle less sophisticated, at least in his native land. 
Here he has been one of the prophets of saving ; and 
if some, refusing to endorse Mill's applause, have re- 
jected this formula, even these have let the implied 
prescription for conduct go uncontradicted. 

In French and German economics, so far as I have 
seen, there has been on this point the same prepon- 
derance of Smithian dogma, though Rodbertus and 
others have called for modifications, lvoscher has, 
of course, contemplated the problem, but is character- 
istically inconclusive. He does indeed make an ex- 
plicit statement of the necessary limitation of capital. 

" It may be seen from the foregoing that the mere saving of 
capital, if the nation has to be really enriched thereby, has its 
limits ... As trade becomes more flourishing, smaller stores 
answer the same purpose. :; And no intelligent man can desire 
his productive capital increased except up to the limit that he 
expects a larger market for his enlarged production." i 

1 Positive Theory, p. 123. - As last cited. 

'■' J So in English translation, made from 13th German ed. The 
passage is not in my copy of the original, 3rd ed., and it seems 
unfortunately put. 

4 Principles of Political Economy, sec. 221, Lai or's trans. 


This, however, does not squarely put the point as 
to individual money-saving; nor is it definitely put in 
the following observations : 

" If a people were to save all that remained to them over and 
above their most urgent necessities, they would soon be obliged 
to seek a wider market in foreign countries ; but they would 
make no advance whatever in higher culture nor add anything 
to the gladness of life. On the other hand, if they would not 
save at all, they would be able to extend their enjoyments only 
at the expense of their capital and of their future. Yet these 
two extremes find their correctives in themselves." .... 
" The ideal of progress demands that the increased outlay with 
increased production should be made only for worthy objects, 
and chiefly by the rich, while the middle and lower classes 
should continue to make savings, and thus continue to wipe out 
differences of fortune.'' .... "That there is, at least, not too 
much (!) to be feared from the making of too great savings is 
shown by Hermann, St. Untcrsiich. 371 etseq. On the other hand, 
there is less wealth destroyed by spendthrifts than is generally 
supposed, for spendthrifts are most frequently cheated by men 
who make savings themselves (Mill i., 5, 5).'' 1 

This somewhat bi-frontal performance is probably 
the most advanced practical teaching on the subject 
in German economics. Walcker 2 does indeed speak 
of capital with some alertness of perception : — 

" Die Begriffe Capital und Vermogen vcrhalten sich ahnlich 
wie die Begriffe Ertrag und Einkommen. Im Worte Vermogen 
liegt ein Hinweis auf den oder die Eigenthiimer einer Surarae 
(z. B. ein Haus und Werthpapiere) oder eines Organismus von 
wirthschaftlichen Giitern, wiihrend das Wort Capital etwas un- 
perBonliches enthalt. Es bczeichnet ein Vermogen oder eincn 
Vermogenstheil in seinen objectivcn Beziehungen zur Produc- 

1 lh. and note. 

- Lehrbuch der Nationalb'konomie, L875, S. 8. 


tion, zum Umlauf and zur Conaumtion oVr Giiter. In derRegel 
gehl nur das Vermogen, aber nicht das Capital eines Versch- 
wenders oder Bankrotteura unter; das letztere geht meist in 
andere Hande iiber." 1 

But a few pages farther on, 2 Dr. Walcker begins to 
make it intelligible how abstract conceptions of capital 
may be brought into discredit : — 

" Das Capital zerfallt, entssprechend seinem Begriff, in folgende 
Classen : Landgliter, Grundstiicke, Bcrgwerke, Bodenameliora- 
tionen, Bauwerke, Werkzeuge, Maschinen und Gerathe, 
Arbeits- und Nutzthiere (resp. Sclaven), Hanpt- und Hiilfsstoffe, 
Unterlialtsmittel, Handelsvorrathe, Geld, korperliche und 
geistige Arbeitskraft und imnviterielle Capitalien. Zu den 
letzteren gehoren der Staat, die Cultur eines Yolkes und stm ng 
genommi a auch ein gesundes Itirchliches Lebm, wenn es nichi 
unpassend ware, das JEwige unter erne okonomische vergangliche 
Kategorie srw Ziehen. " s 

1 " The ideas capital and property relate together similarly with 
the ideas proceeds and income. In the word property is im- 
plied an allusion to the ownership of a total (e.g., a house and 
title-deeds), or an organism of domestic possessions, whereas 
the woi'd capital implies something impersonal. It indicates a 
property or a portion of property in its objective relation to 
production, to circulation, and to consumption of goods. As a 
rule, only the property and not the capital of a spendthrift or 
bankrupt is destroyed ; the latter mostly passes into other 

2 S. 14. 

3 " Capital, corresponding to its idea, divides into the following 
classes : Landed estates, plots of ground, mines, soil-improve- 
ments, buildings, implements, machines and utensils, animals 
for labour and use (in a sense, slaves) ; principal and accessory 
materials, means of subsistence, stock-in-trade, money, corporal 
and mental labour-power, and immaterial capitals. To the 


After this it is not \vh0ll3- disappointing to the 
believer in immaterial capital to find Dr. Walcker * 
making the orthodox declaration : — 

"Die alte Irrlehre, class die Reiclien, resp. die Regierungen 
Almosen geben, wenn sie verschwenden, spukt noch immer. Jede 
Luxusausgabe vernichtet ein Capital, welches, productiv ver- 
wandt, die Subsistenzmittel des Yolkes vermehrt hiitte." 2 

Thus, within twenty pages of his statement that, as 
a rule, only the property (Vermdgen) but not the 
capital of a spendthrift or bankrupt is destroyed, the 
latter mostty passing into other hands, Dr. Walcker 
affirms, in flat self-contradiction, the old dogma that 
" every luxurious outlay annihilates a capital which, 
productively applied, would have increased the means 
of subsistence of the people." It is the old fatality. 
Especially piquant, in the circumstances, is the old 
specification of " luxurious outlay " as a cause of 
annihilation of capital. On the same principle, obvi- 
ously, every outlay whatever would do the same thing; 
and all expenditure, and accordingly all consumption, 
becomes an evil, to be minimised by the self-denial 
of the righteous, prepared thereto by " a sound 
spiritual (Icirchliches) life — if it were not improper to 
1 >i ing the Eternal under a transient economic category.' 

latter belong the State, the culture of a people, and, strictly 
speaking, a soxvnd religious life, if it ire re nut im/impey in phuu 
the Eternal wilder a t/ra/nsitory economic category." 

1 S. 37. 

" " The old error, that the rich, or rather the ruling classes, give 
bounty when they squander, is always cropping up. Every 
luxurious expenditure annihilates a capital, which, productively 
applied, would have increased the people's means <>f subsistence. 


Only a German can attain to quite such transcend- 
ent heights; but on the strictly economic line of the 
argument, Dr. Walcker is not unrivalled in France. 
One of the most widely-read manual-makers, M. Joseph 
Gamier, outdoes Smith in his denunciation of the 
prodigal and his praise of the saver, arguing explicitly 
that to spend is to annihilate labour, in terms which 
imply that all consumption is, at best, a necessary 
evil, while production is man's mission on earth : — 

" Toutes les fois qu'un capital se dissipe, il y a dans quelque 
coin du monde une quantite e'quivalente d'industrie, qui s' 
t'teint. Le prodigue qui perd un capital augmente la premiere 
annde le revenu de ses fournisseurs, souvent peu recommand- 
ables, mais il detruit pour les annees suivantes le salaire des 
hommes laborieux dont son revenu eut alimente le travail " — * 

would have alimented, that is, in employing them to 
make goods which it would in the nature of the case 
be prodigality to buy. 
And again : — 

" Pour apprecier les funestes efl'ets de la dissipation, il suffit 
de remarquer qu'une valeur epargnde devient une valeur 
capital dont la consummation se renouvelle sans cesse, tandis 
qu'une valeur dissipde ne se consomme qu' une fois"— - 

1 "Every time that a capital is dissipated, there is in some 
corner of the world an equivalent quantity of industry which 
is extinguished. The prodigal who loses a capital increases 
for the first year the revenue of his caterers, often not very 
respectable, but he destroys for future years the wages of 
laborious men whose labour his revenue might have maintained." 
(Traite oVEconomie Politique, par Joseph Gamier, Gieme ddit. , 
sec. 843.) 

2 " To appreciate the pernicious effects of expenditure, it 


the thing saved being here envisaged as value, with- 
out any recognition that to multiply value is in no 
wa}' to feed labouring men. M. Gamier has, probably 
unintentionally, committed himself to one of the de- 
lusions of the Physiocrats. 

Helplessly led by McCulloch, M. Gamier goes on to 
recognise that luxury is after all a relative thing, and 
not to be condemned in the spirit of the old moralists ; 
and in this view reasons that outlay is to be decided 
on by each for himself, with a view to the highest 
kinds of enjoyment; but here the good gentleman 
pulls himself up to reiterate that 

" II ne faufc pas oublier que l'homme econome qui se borne au 
ndcessaire rend, de son cotd, des services a la societe par la 
formation d'un capital, d'un instrument de travail, de progres 
et d'emancipation physique et intellectuelle"— x 

that is to say, the thrifty man renders a service to 
society in consuming only the necessary and causing 
to be produced the unnecessary, which, we have just 
been told, it is economically injurious to the com- 
munity for the individual to buy. So that " pro- 
gress" is always an economic loss to the community. 
Similarly M. Droz inculcates saving in a paragraph 
in which he unconsciously specifies its bad effects : — 

suffices to remark that a saved value becomes a capital value of 
which the consumption renews itself without cessation, while a 
value expended is only consumed once." Id. ib. 

1 " We must not forget that the thrifty man who limits him- 
self to necessaries renders, on his part, services to society by 
the formation of a capital, an instrument of labour, of progress, 
and of physical and moral emancipation." Id. sec. 818. 


"II ne faut done point, dans des vues d'interct pour lc com- 
merce, de"clamer confcre la prevoyance et 1'cpargne. Cc qui 
paralyse surtout les capitaux, ce sont les circonstances oil, 
mecontens du present, inquiets de l'avenir, les homines in- 
dustrious suspendent leurs projets, et nieme craignent de 
preter leurs fonds a cuux qui sc montrent plus confians ou plus 
teme'raires. Alors les capitaux se resserrent, le travail languit, 
la souffrance devient generale." l 

That very paralysis of production here described is 
obviously a consequence of such saving as is being re- 
commended, inasmuch as producers will always pro- 
duce where there is market demand. Here it is not 
even pretended that industry is paralysed by lack of 
" capital ; " and } T et the advice to amass more capital 
is endorsed. Such is the drift of economic prescrip- 
tion in France as in England, the habit of saving be- 
ing indeed much more rooted and general in France 
than here. There must, I suppose, have been en- 
lightened protest against the delusion in France as 
there has been in England ; but it has counted for 
nothing, the only visible opposition being that im- 
plied in the socialistic movement, which does not 
specially attack the economic fallacy of saving. Nay, 
so thoroughly did the Smithian succession establish 
the optimistic dogma of the all-sufficiency of saving 

1 -l We must not then, with a view to helping commerce, de- 
claim against foresight and saving. 'What chiefly paralyse 
capitals are the circumstances in which, discontented with the 
present, anxious for the future, business men suspend their 
projects, and even fear to lend their funds to those who show 
themselves bolder or more confident. Then capitals are locked 
up, trade languishes, hardship becomes general/' Economic 
Politique, par Joseph Di-oz, 1854, p. 49. 


and investment, that when, a few years ago, a London 
alderman sought to make out that the Lord Mayor's 
banquet was " good for trade," the outcry against him 
was virtually universal. He was ridiculed, not for 
defending a gross and vulgar form of expenditure as 
distinguished from worthier forms, but for supposing 
that any kind of expenditure could help trade half as 
efficiently as would the act of putting the money iu 
the bank. Smith's saving clause about " public opu- 
lence " had disappeared from economic memory, and 
the argument was pure Bonamy Price — for the news- 
papers had not room for sophistry on the scale of 
Mill. Not only the middle-class press but professedly 
socialist economists 1 hurled at the friendless alder- 
man the information that if he or his colleagues had 
only put their money in the bank it would have gone 
to build railways — for it is always railways that are 
supposed to spring from accumulations. This was at 
a time when " money " was notorious!}' abundant and 
extremely cheap, and when promising concerns, such 
as brewery companies, could have sold their shares ten 
times over. If the dogma of investment can thus 
find an overwhelming majority of devoted adherents 
at a time when abundance of nominal capital and 
sluggishness of trade are equally obvious, it is not 
difficult to understand how it could be believed at 
times when interest was high and trade brisk. 

1 One of these I understand to have since abandoned his 



It is easy to see, however, that the vogue of the 
Saving fallacy has from the first depended on the 
mass of misconceptions set up by applying the word 
" capital " to the phenomena of money-saving while 
conceiving it in the old sense of saved products. We 
saw at the outset how profoundly this procedure con- 
fused and vitiated the reasoning of Turgot. But it 
has been just as potent for evil in orthodox economics 
since. Everywhere there is made the monstrous as- 
sumption that the money, or rather claim to money, 
saved annually represents a saving of products and 
means of production to that amount. In John Mill's 
lamentable argument about the bricklayers and the 
velvet- makers, we saw him speaking of capital as a 
motive-force transferable from one emplo3 7 ment to 
another totally different. " There was," he says at 
one juncture, " capital in existence to do one of two 
things — to make the velvet, or to produce necessaries 
for the bricklayers, but not to do both." He must 
have meant money-credit, or money-claim, which 
could be turned from manufactures to agriculture, or 
from velvet-making to tailoring and boot-making. 



Even in that sense the statement is absurd, for the 
capital is, in the terms of the case, sunk in machinery, 
which must be unsaleable. But since the mere pa}*- 
ment of wages to the bricklayers would at once enable 
them to get necessaries, it clearly follows that the 
capital is merely claim on services, which can be 
transferred. Yet the same economist, in order to 
justify saving and vindicate the saver, must needs 
write in many other passages as if to save capital 
were to accumulate necessaries of industry, without 
which it must collapse. So, J. B. Say, even with his 
eye on matter and motion, speaks habitually of a 
" productive fund'' which " renews itself '; " and, de- 
claring capital to be one of the three agents of pro- 
duction, defined it as being at the same time an 
" accumulation of values." x James Mill, after decid- 
ing that " the instruments which aid labour, and the 
materials on which it is employed, are all that can be 
correctly included in the idea of capital," 2 goes on to 
lay it down that in this sense capital is " evidently a 
result of what is called saving"; when all that is evi- 
dent in the matter is that food capital is such a result 
— that is, primarily. If it be meant that all industrial 
actions result from saving because proceeding upon 
food, it might as well be said that they result from 
aii- or water, or health, or rationality. But James 
Mill 8 proceeds to declare in express terms that "the 
augmentation of capital is everywhere exactly in pro- 

1 Traibd, i. !'!', 103, ii. 454. " Un capital n'est point la somme 
d'argent sous la forme do laquelle il est souvent prdte' ; rnais la 
ocdeur de cet argent" (ii. 4.")."}, 456 ; i. 97). 

2 Elements of Political Economy, 3rd ed., p. 17. :i Page 20 


portion to the degree of saving; in fact, the amount 
of that augmentation, annually, is the same thingwith 
the amount of savings which are actually made." 
That is to say, the mass of machinery and tools made 
each year for productive purposes, added to the 
amount of raw material provided for manufacture, is 
identical with that year's savings. And as the econo- 
mist must have had in his view money or nominal 
savings, since he offers no discrimination, and must 
have known he would be so understood, we find him 
formally landed in the extraordinary hallucination 
that the net amount of annual saving, recorded by 
the bank totals, always equates exactly with a mass 
of tangible " saved " materials. We can only conclude 
that, like Smith, he did not realise his proposition 
conceptually at all, but was merely carrying on a 
verbal demonstration, which could only have continu- 
ous significance by a continual change in the values 
of his terms. As it stands, it is meaningless. Cer- 
tainly, James Mill has here made a bold and open 
attempt to settle the question of what it is that is 
saved by the thrifty, and to face the difficulty about 
the saving being made in money — the only frank 
attempt, almost, since Turgot. But it is a complete 
failure, and his successors manage no better. 

Ricardo, 1 in the same way, passes with no attempt 
at analysis from concrete capital to capital " employed 
in the payment of wages," and, later, 2 speaks without 
explanation of bankers " employing a large capital " 
in discounting bills. Yet he also speaks 3 of diminu- 

1 Oh. i., sec. 4. - Ch. iv. 

:i Chs. ii. viii. Works, pp. 41, 87. 

bohm-bawerK. 75 

tion of capital as diminishing the population and the 
amount of production clearly meaning diminution of 
food. He thus implicitly accepts Mill's doctrine. 

And that fantastic hypothesis is to this day found 
to be the basis of most economists' doctrine as to in- 
crease of capital. Professor Bohm-Bawerk notes that 
" not long ago Kleinwachter (Schonberg's Handbuch, 
2nd ed., p. 210) could explain: 'common usage in 
political economy to-day considers it an essential 
characteristic of capital that it is a material means of 
production.' " x And Professor Bohm-Bawerk, despite 
his analytical method and his vigilance, lends himself 
to this virtual confusion of the facts of ordinary 
commerce — for it is a confusion to define " capital " as 
above without express exclusion of the common 
significance of money-credit. He does, it is true, make 
a formal division of capital into that used for pro- 
duction and that which yields interest, and he demurs 
to the refusal to call both forms capital. 2 But still he 

1 Positive Theory of Capital, Eng. tr., B. I., ch. iv., p. 40, note. 

- " Of recent French writers on the subject," lie writes, " I ride 
(Principes d'Economie Politique, Paris, 1884) recognises the two 
varieties in the conception of capital with a clearness rare even 
in French literature, and distinguishes them as ' capitaux 
siinplement lucratifs,' and ' capitaux productifs.' ' Les premiers, 1 
he says, ' sont ceux qui rapportent un revenu a une personne ; 
les seconds sont ceux cpii produisent une richesse nouvelle dans 
le pays ' (p. 148). His only failure is that he would recognise 
productive capitals alone as true capitals." (Positive Theory, as 
cited.) But this of M. Gide is simply a textual repetition of 
what was said by Droz as long ago as 1854 : "Les capitaux 
sont tou jours des produits amasses par L'epargne, mais ils a'ont 
pas tous la meine destination. Ceux qu'on emploie a cn'er de 
nouvelles richesse. sont les plus utiles p mrla socie^e*. D'autres 


speaks of capital in the whole as " a group of pro- 
ducts which serve as means to the acquisition of 
goods "' x [ = wealth]. " Under this general concep- 
tion," he adds, " we shall put that of social capital as 
narrower conception." 2 And the reason for this de- 
finition is found to be substantially the Smithian 

" Without laying any particular weight on the fact that the his- 
torical origin of the word capital indicates a relation to an 
acquisition or a gain, and that our reading remains true to this, 
it preserves the double relation — the relation to acquisition of 
interest on the one side, and to production on the other — which 
was imported into the conception of capital by Adam Smith " 
[Professor Bohm-Bawerk himself shows, however, that the 
beginning was made by Turgot, who did it for the encouragement 
of saving], " and since his time has been adopted in scientific 
usage." 3 

Now, we have seen that Smith's notion of capital, 
as set forth in connection with his fundamental 
doctrine of saving, was confused and fallacious to the 
last degree ; and it is impossible to see how there 
could be any gain to economics from adhering to his 
definition of capital, even if we guarded against his 

rapportent seulement un revenu a leurs possesseurs. . . . [Les 
capitaux qui] dounent un revenu et qui multiplient les richesses 
de la soci^te\ . . . sont les seuls vraiment prod/uctifs, on pourrait 
dire que les autres sont seulement lucratifs." (Economie Poli- 
tique, as cited, pp. 47, 48.) 

1 There is some danger of misconception of Bohm-Bawerk's 
meaning at times in respect of the use desired to be given to the 
English word "goods" by his able translator Mr. Smart. See 
Mr. Smart's Introduction to the Theory of Value, p. 11. 

- Posit ice Theory, p. 38. :i lb., p. 3D. 


confusions. But Professor Bohm-Bawcrk does not 
finally guard against them, for while formally dis- 
puting Smith's formula that capital is the result of 
saving, he only substitutes the formula that it is the 
result of production and saving; 1 he adheres to the 
doctrine that all capital is material ; and he explicitly 
sets his face against those who recognise how exten- 
sively the word means something else : — 

"Finally," he says, after discussing the various definitions, 
' ' there remain those conceptions which see in capital not a 
complex of goods, but an abstract quantity hovering over goods, 
as it were; as, for instance, Kiihnast's 'sum of value,' or 
Macleod's ' circulating power.' I have, generally speaking, a 
very poor opinion of such idealisations of economic conceptions. 
They are usually cheap expedients for getting round difficulties." - 

I will not presume to charge against Professor Bohm- 
Bawerk the use of cheap expedients, but I do say 
that he himself is all the while evading a difficult}'. 
He ought to have grappled with Mr. Macleod's ex- 
position (I pass over Kiihnast), which he does not. 
Mr. Macleod is almost the only economist who has 
expressly recognised as matter of economics the dis- 
tinction between jus in rem and jus in persona m , 
concrete property and claim; and he is therefore the 
clearest in his declaration of the economic bearing of 
credit. He has laid down, too, the one truly 

1 This is the old position of J. 13. Say, who differed 
formally from Turgot and Smith (Traite, i., 110-113), after say- 
ing with Smith that saving is the "only'' means of increasing 
capitals (p. 103), and that to save values is to turn them from a 
sterile to a reproductive consumption. 

2 26., p. 08. 


philosophical definition of capital: — "Any Economic 
Quantity used for the purpose of profit." 1 This 
definition, I confidently affirm, will survive Professor 
Bohm-Bawerk's, if only we substitute " gain " for 
" profit." It covers a multitude of economic facts 
which the Professor's definition does not, though he 
recognises them separately as facts. It goes back 
(which Professor Bohm-Bawerk's definition does not, 
though he says so) to the pre-Smithian sense of 
capital as that money-credit which yields a gain. 
The Professor has shown 2 that Turgot had partly 
fixed the material sense on capital before Smith; and 
it is not difficult to see historically how this came 
about. They were on the side of home production, 
but also on that of parsimony, and they gave the 
" capital" significance rather to the kind of property 
which was in their day beginning to yield the largest 
masses of profit, as in the hands of manufacturers, 
who gave capital the material form. At the end of 
last century, and in the first half of this, the largest 
gains were made by traders and manufacturers, and 
attention was fastened on their plant as the chief or 
" capital" means of acquiring wealth. In later years, 
competition has greatly lowered the profits of trade 
and manufacture, and the multiplication of invest- 
ments has, in general usage, distinctly tended to give 
the term capital a significance largely made up of 
mere money-credit or claim. 

1 Economics for Beginners, p. 45. See also the valuable trea- 
tise on Capital in his Dictionary of Political Economy, where he 
traces the history of the idea. 

- Work cited, pp. 24-30. But on this see Macleod. 


And the practical necessity of a reformed definition 
is finally proved by the collapse of Bohm-Bawerk's 
own. The collapse takes place, according to pre- 
cedent, when he deals with the doctrine of saving. 
He argues, as we saw Cairnes did, that saving would 
be as necessary in a socialistic as in a competitive 
community. But his proof shows that what is needed 
is not at all saving in the normal sense of the term. 

"The method," he says, " would simply be to put a consider- 
able proportion of the national workers to very lengthy pro- 
cesses, whereby the making of capital, in the form of intermediate 
products, would be very great, and the amount of matured 
products in the future would be much increased.'' ] 

Quite so ; and thus is Cairnes answered. The social- 
istic State would make its "capital "— plant; and to 
call this process " saving," after recognising its nature, 
is to make a confusion of language doubly un- 
warrantable in view of Bohm-Bawerk's own excuse 
for his old-world definition of capital. In regard to 
present-day saving, however, he himself supplies the 
refutation of his definition of capital, and of his en- 
dorsement of the doctrine of saving. He admits that 
the undertakers or master-producers " do not decide 
at their pleasure" the direction which the national 
production takes ; " they follow impulses given by the 
l>ricrs of products, hi the last resort, therefore, 
it is not the undertakers who decide the direction of 
national production, but the consumers, tin; ' public.'" 
Nothing can be more explicit: here we are fully 
delivered from the hallucination of Mill. Hut note 

1 Positive Theory, B. II., ch. v., pp. 113, i I I. 


how the difficulty as to general saving is finally 
evaded by Professor Bohm-Bawerk. He allows that 
a check of consumption causes loss and hardship, but 
argues that the demand for consumption-goods must 
not be so great as to take all the labour-power 
and leave none for replacing and extending plant. 
Therefore, so much (of what ?) must be " saved '' as 
will employ labour in doing this. Now, it is a matter 
of fact that in ordinary commerce the replacement of 
plant is an ordinary charge on a business, and is nor- 
mally met by the plant-owners themselves, leaving 
only extensions of plant to be met by outside 
" savings." In any case the replacement and exten- 
sion of plant is clearly a charge strictly limited by 
the state of consumption, and represents just that 
amount of " saving " or " capital-making " that is 
argued for by Lauderdale in opposition to Smiths 
doctrine of unlimited saving. Yet Bohm-Bawerk 
does not once put this explicitly. The necessary 
savings, he declares, 1 " will be spent in the increasing 
of capital," because — 

"An economically advanced people does not hoard, but puts 
out what it saves, in the purchase of valuable pa/per, in deposits 
in a bank or savings haul:, in loan securities, etc. In these ways 
the amount saved " (no limitation) " becomes part of productive 
credit ; it increases the purchasing power of producers for pro- 
ductive purposes ; it is thus the cause of an extra demand for 
means of production or intermediate products ; and this, in the 
last resort, induces those who have the regulation of under- 
takings to invest the productive powers at their disposal in these 
intermediate products." 

1 Pa£?e 115. 


Here we have one of the abstract formulas before 
rejected. What is saved is here just purchasing 
power. Either this saving is capital or it is not. If 
not, Bbhm-Bawerk's argument collapses to insignifi- 
cance. If yes, his definition of capital has broken 
down. And this last is what really happens. As 
regards the general problem of individual saving, he 
has passed it by. It is clear that saving in excess of 
the purchasing power needed to cause the making of 
plant or intermediate goods enough for the industrial 
situation, can have no producing influence, there 
being only a given amount of demand for consump- 
tion products ; but Bohm-Bawerk does not say so. 
What he proves gives no economic countenance to the 
doctrine of general saving ; yet his general language 
has the air of giving such countenance, and he never 
undeceives Iffe readers. In view of the clear collapse 
of his definition of capital, we can only conclude that 
he had not seen what the problem really was. His 
further paragraphs * are perfectly irrelevant to it, as 
he simply proves over again that if the demand for 
consumption-goods were so great that all existing 
labour-power went to producing them, the stock of 
" capital," = plant and intermediate goods, would fall 
off with disastrous results. This obviously impossible 
conjuncture figures as a final implicit justification of 
the practice of money-saving in general. 

Old sensations revive whu*i we find Professor Bohm- 
Bawerk after this performance going on to explain 
with serious unction that in his foregoing exposition lie 
has "risked being tedious rather than being suspected 

1 Pages 110, 117. 


of sophistry." I will not accuse the Professor of 
sophistry save in the sense of paralogism. But I 
affirm that he docs substantially what Smith and 
Mill did in their turn — go astray over one of the 
greatest of the practical issues of European economics; 
and I can only offer the old explanation, that he was 
dominated by a desire to justify the prevailing social 
ideal and practice. Fortunately, he being the later 
and the closer reasoner, his argument contains the 
larger measure of sound statement, and the less 
measure of unsound. His practical fallacy is an 
implication rather than a statement; and he shows 
consciousness enough of his exigencies to make it 
likely that his exposition will yet be recast. In the 
next chapter he writes 1 with significant heat : — 

" If anyone is stupid enough to interpret the theory of saving 
as meaning that Jinislied capital in its form of concrete capital 
must be ' saved, ' he must submit to the retort that man cannot 
eat iron machines. But that is not at all the meaning of any 
thoughtful representative of the theory. What is maintained 
is only that, without saving, capital cannot be made or in- 
creased ; that saving is as indispensable a condition of the 
formation of capital as labour. And this is literally correct." 

What is here called stupid is the express doctrine 
of the apostolic succession of economists, who say 
that it is products that are " saved. ; ' Those who 
have said otherwise have been those who, like J. B. 
Say and Mr. Macleod, recognise capital as an abstract. 
And Bohm-Bawerk, as we saw, has himself explicitly 
defined capital as consisting in concretes, and has 

1 Page 119. 


expressly depreciated other definitions as evasions of 
difficulties. Now he implicitly admits that capital 
may have a non-concrete form. Yet all the while he 
evades plainly answering the general question, — What 
is saved? His case of the socialistic community, how- 
ever, gives the simple answer. It is industrial motive 
or inducement (in our society, claim to ivealth or pur- 
chasing power) that is needed to make labour do any- 
thing, and " saving," properly so-called, is only our 
special blind competitionist form of accumulation of 
such power or motive, an accumulation always de- 
feating itself by misdirection. So that the doctrine of 
universal thrift is once more seen to be a futility, and 
the old definition of capital a stumbling-block, on the 
line of the latest economic analysis. 

And yet the ruck of the economists, as of the 
politicians, mostly adhere to the Smithian conception, 
vitiated as it is by the flagrant fallacies of its applica- 
tion. Knowing that the claims of investors in 
national debts are constantly reckoned as capital, they 
persist in talking of all capital as consisting in 
material things. 

On such a foundation, error is sure to arise. Even 
Mr. Macleod, who sees that rights are economic 
quantities, and as such, like other credit, may be 
capital, does not recognise the Fallacy of Saving as it 
pervades our economics. And if Mr. Macleod misses 
the practical or sociological upshot, the more orthodox 
economists do worse. Just as some assume all banked 
credits to be represented by actual money, despite the 
notoriety of the fact that they cannot be, so do others 
assume all credits to be represented by saved products 


despite the obvious fact that they cannot be. Pro- 
fessor Sidgwick, rightly deciding (though he has since 
gone back on his perception) that " the greater part of 
the 'unequalled loan fund ' of Lombard Street can 
never emerge from the immaterial condition of 
bankers' liabilities," points out that 

" this obvious truth is overlooked, or even implicitly denied, 
not merely in all formal definitions of money, but in most of 
what is said and written about the functions of bankers. Mill, 
for instance, implies over and over again that the medium for 
exchange, which it is the business of bankers to collect from 
private individuals and lend to traders, consists altogether ot 
coined metal — or at least of coin and paper substitutes for coin 
made legal tender by Government. A similar implication is 
contained in much of Bagehot's language. And indeed 1 hardly 
know a single English writer on the subject, with the exception 
of Mr. Macleod, who does not continually present this view to 
his readers." 1 

But if it be a serious blunder to conceive of all bank 
credits as being represented by money in the ordinaiy 
sense of the term, it is an immenseby more serious 
blunder to conceive of all such credits as being 1 re 
presented by saved goods. Says Mr. Macleod 


" It is a very prevalent opinion, even among men of business, 
that real bills are essentially safe, because they arise out of real 
transactions, and always represent property. But .... we 
have seen that in the most legitimate course of business there 
will generally be two or three bills afloat arising out of the 

1 Principles of Political Economy, 1883, pp. 236,237. Let the 
reader note how distinctly the admission made here conflicts 
with the teaching in the Elements of Politics, cited in our first 


transfers of any given goods ; so that, in the ordinary course of 
business, there will be twice as many bills afloat as there is pro- 
perty to which they refer.'' l 

What is true of bills is equally true of the mass of 
credits in general. The added ciphers of the bankers' 
books represent no addition of " saved products " to 
the store of such products available for the "mainten- 
ance of industry," but simply the metaphysical fact of 
so much general " claim to wealth," claim of which the 
validity is constantly fluctuating, being plainly de- 
pendent on the extent to which individual claims are 
at any moment sought to be realised, relatively to the 
state of production. It ought to need no demonstration 
that if the purchasing power of money is a fluctuant, 
much more so is the wealth-claiming power of credits, 
which are but claims to money. In our industrial 
system, services are rendered only for the reward of a 
lien over other services, and this lien is in the last 
resort represented by money. While, however, we 
wish to accumulate our claim on services in general, 
we cannot all accumulate it in money, and so it comes 

1 The Theory of Credit, 1800, vol. ii., pt. i. p. 344. Mr. 
Sidgwick, in acknowledging his obligations to Mr. Macleod, adds: 
"1 must guard myself againsl being understood to approve of 
Mr. Macleod's general treatment of Economics." I regret that 
in making similar acknowledgments I must make the same 
qualification. In tin- passage I have quoted, Mr. Macleod lays 
his linger on a great delusion, profoundly affecting economic 
science ; further on (pp. 481-0) he does desperate battle against 
the mere verbal solecism of calling the National Debt a mortg 
on the property of the count iy instead of a charge mi its income. 
A reader is invited to suppose that these issues are of equal or 
similar practical important <■ 


to be stored up in simple credits. Thus the nominal 
mass of saved capital represents simply claims to 
wealth or power to buy services, and, so far from the 
wealth being actually saved, it is in large part purely 
prospective, for the services which are to constitute it 
have not yet been rendered. As the National Debt 
burdens in advance the industry of the future, so does 
all saving of conventionally recognised claim to wealth 
constitute a lien over future labour. 

The recognition of these simple truths would rid 
economics of two correlative dogmas which stand in 
the way of all scientific reconstruction of the social 
system. The first is that, but for assiduous " saving " 
of claim to wealth, industry would collapse: the 
second, that multiplication of " saved " claim to 
wealth means increase of national wealth. 

I. The fear of decline of industry through defect 
of "capital," in the sense of bankers' liabilities, 
would be annihilated by the perception that " credit 
is capital " in precisely the sense in which " savings 
are capital." Professor Sidgwick's fear of the explicit 
makes him give only a half-confident exposition of 
this truth. Mill, he notes, 

" speaks contemptuously of an ' extension of credit being talked 
of .... as if credit actually were capital,' whereas it is only 
' permission to use the capital of another person.' Now, in a 
certain rather strained way, we might say this of gold coin : its 
function is to ' permit ' or enable its owner to obtain and use 
other wealth. And it is only in this sense that Mill's statement 
is true of the credit or liabilities which a banker lends to his 
customers, whether in the foim of notes, or under the rather 
misleading name of ' deposits.' This credit, no doubt, is a com- 


paratively fragile and perishable instrument for transferring 
wealth ; but that is no reason for ignoring the fact that, in a 
modern industrial community, it is the instrument mainly used 
for this important purpose." 1 

All this should have been put as emphatically as it is 
<y put gingerly. The function of gold coin is precisely, 
and in no strained sense, to permit its holder to obtain 
and use other wealth ; 2 and on the definition of 
capital which Mill employed in common with his 
predecessors, all money is simply permission or title 
to use capital. Having seen this even partially, 
Professor Sidgwick has " fallen from light " to Mill's 
own level of error when in his later work, before 
cited, he teaches that unchecked accumulation of 
savings is necessary to the industrial well-being of the 
whole community. It lies on the face of the argu- 
ment before us that the power wanted is set up by 
.simple extension of credit. And here is the whole 
case in a nutshell: that whereas actual money = 
" capital '' means power to get and move products, so 
credit or recognised title to money means primarily 
power to get and move money. In practice this latter 
motion might actually take place, and to some extent 
does take place, the circulating rate of money being 
indefinitely capable of quickening; but since the 
movement of coin can in many cases be dispensed 
with, the movement of products which brings about 
fresh production takes place in great measure on the 

1 As cited, p. 239. 

- This is expressly stated even by Mill, B. III., ch. vii., sec. 3. 
Cp. Macleod, Economics for Beginners, p, 33. 


simple "permit" of credit, as represented by bankers' 

But if " faith in the bank " can admit of the move- 
ment of products and money, and thus of fresh 
production, so, obviously, can mere mutual faith as 
among producers. This is implicitly admitted by 
economists, such as Mill and Professor Marshall, 1 who 
maintain, with whatever ambiguity of meaning, that 
all industry depends on capital, and that all capital is 
saved. Professor Marshall, we have seen, deprecates 
Mill's formula in his latest work; but in another 
passage he still gives it a virtual endorsement in the 
sense which it properly carries. Bowing, with his 
usual candour, to the necessity for a widened defini- 
tion of capital, he includes in individual capital " all 
wealth or command over wealth which is lent out at 
interest, whether in money or in any other form." 2 
Yet he still states in a footnote 3 that "whatever 
definition of capital we take, it will be found to be 
true that a general increase of capital augments the 
demand for labour and raises wages." He adds that 

1 Mill's Principles, B. III., ch. xiv., sec. 4 ; Economics of In- 
dustry, B. III., ch. i., sec. 4. Mill, in the passage cited, expressly 
argues that a commercial crisis is the effect, not of over-produc- 
tion, but of "an excess of speculative purchases." Yet he pre- 
scribes new purchases as the cure. Mr. and Mrs. Marshall, 
while affirming that all supply is demand, explain that " though 
men have the power to purchase they may not choose to use it," 
which by context means, if anything, that the error lies in 
checking their production, which might go on multiplying for 
ever. And still no word of consumption. 

- 1st. ed., p. 127. 

8 1st. ed., p. 133, 


" whatever definition we take, it is not true that all 
kinds of capital act with equal force in this direction;" 
but this leaves the fallacy unrectified. His pro- 
position remains that increase either of saved claim 
to wealth or of, say, machinery, generally tends to 
increase the demand for labour and so to raise wages. 
Now, it would be a mere quibble to say that increase 
of machine plant augments the demand for labour in 
respect that labour was needed to make the new 
machinery, and yet only in that sense would the 
proposition be valid. New machinery, once made, 
can be employed only when there is demand for 
what it will produce ; and saved money-claim will, 
similarly, only be put to the employment of new 
labour when there is supposed to be demand for what 
it can do, or hope of underselling other labour, which 
will be thrown idle. To demand we always return. 
When again Professor and Mrs. Marshall write that 
" The demand for labour in a disirict cannot in the 
long run be increased by any device that docs not 
lead to an increase of the supply of capital in it," 1 
they are plainly right if they simply mean that 
increased employment of labour means increased 
consumption of food and tools, and so forth. But it 
does not at all follow that there must also be an 
increase of that nominal "saving" of money which, 
in the exposition of Mr. and Mrs. Marshall, as in that 
of "orthodox" economists in general, is sure to be 
understood (whatever they may have meant) from 
their repetition of the old formula about capital being 
a result of saving. And the futility of that formula 

Economics of Industry, p. 10. 


in any case is now clear, when we recognise that mere 
mutual trust as between producers will lead to the 
creation of fresh capital in the concrete form of plant 
and stock, which but for such mutual confidence 
•would not have come into existence, the really 
"saved" food-capital remaining in either case the 

But if, finally, industrial confidence means the move- 
ment of products and the spontaneous creation of actual 
capital = products, then the saving of "claim to wealth" 
is no necessary part of the process of wealth-creation 
even in a competitive community. And as industrial 
confidence is notoriously commensurate with activity 
of demand, the creation of wealth can obviously be 
promoted by the substitution of an ideal of consump- 
tion for an ideal of parsimony. 

Here, however, it will be well to carry the exposi- 
tion briefly to its sociological conclusions. These are 
(a) that as consumption cannot be indefinitely in- 
creased in quantity of each product for each individ- 
ual, the ideal must be in the main one of rising quality 
— the consumption of things and services which are 
not mechanically facile of production ; and (b) that as 
such raising of the standard of consumption is im- 
possible among a blindly multiplying population, the 
limiting of families is indispensable to the proposed 

II. The foregoing reasoning involves the rejection of 
the doctrine that national wealth is to be measured by 
the totals either of banked credit or of the values 


which measure individual claim to wealth. I have 
said that Lauderdale devoted an unanswerable chapter 
to the refutation of this notion. He pointed out that 
on the system of computation which began in the 
seventeenth century and flourishes still, x national 
wealth is actually estimated in terms of popular hard- 
ship, since that increase in values which arises from 
relative scarcity is included among the individual 
riches which are totalled. He laid it down on the con- 
trary that 

"In proportion as the riches of individuals are increased by an 
augmentation of the value of any commodity, the wealth of the 
society is generally diminished ; and in proportion as the mass 
of individual riches is diminished, by the diminution of the value 
of any commodity, its opulence is greatly increased." a 

This proposition has been denounced as a " melan- 
choly paradox" by an able w r riter 3 in a passage which 
goes on to praise the " masterly exposition " of Ei- 
cardo's chapter on " Value and Riches," in which 
Lauderdale's doctrine is actually embodied. Ricardo, 
it is true, goes through the form of refuting Lauder- 
dale on one contention : but he is really affirming the 
same thing as Lauderdale does ; and if lie drew up his 
own index, we are forced to conclude that he did not 
realise what Lauderdale was driving at. The index 
reference to Lauderdale runs: "his theory that the 

1 Compare his citations from I'etty, King, Hooke, I'ullcmy, 
a id Beeke, pp. 39, 40. 

- Work cited, p. 4!». Cf. p. 57. 

:J P. J. Stirling, The Philosophy of Trade, L846, ]>. L0. This 
writer among other things made important correction 
Ricardo's doctrine of rent. 


scarcity and monopoly of a commodity increase wealth," 
which is the exact reverse of Lauderdale's position. 
Lauderdale used " riches " to describe individual claim 
to wealth, and pointed out that the nominal adding 
together of individual riches did not represent real 
national wealth at all. Ricardo, of course, admits 
that scarcity of commodity would "enrich" the 
holders. He writes: — 

" Let water become scarce," saj T s Lord Lauderdale, " and be 
exclusively possessed by an individual, and you will increase his 
riches, because water will then have value ; and if wealth be the 
aggregate of individual riches, you will by the same means also 
increase wealth. You undoubtedly will increase the riches of 
this individual, but inasmuch as . . . all men give up a portion 
of their possessions for the sole purpose of supplying themselves 
with water, which they before had for nothing, they are poorer 
. . . and the proprietor of water is benefited precisely by the 
amount of their loss." 

Quite so. But inasmuch as the nominal values of 
the transferred possessions remain, the " total of indi- 
vidual riches," in Lauderdale's sense, has increased by 
the nominal value of the (unconsumed and prospective) 
water, though, in the terms of the case, the well-being 
of the majority has diminished. And if for a promptly 
consumed commodity like water, we substituted a 
fixed commodity like land, the case would be still 
clearer. The upshot is, as Ricardo puts it, that 
" value is not the measure of riches," when by 
" riches " you understand, not individual claim to 
wealth, which was Lauderdale's definition, but what 
Lauderdale called public wealth. He and Ricardo 
were at one, the opposed doctrine being that of the 


Physiocrats, who, as before noted, counted a rise of 
prices as an addition to national wealth. And that 
very doctrine is subsumed in the estimates of national 
wealth which still pass current, and in the notion that 
" savings " are part of such wealth. The economic 
truth is accurately put by Ruskin in the formula that 
riches are " a power like that of electricity, acting 
only through inequalities or negations of itself. The 
force of the guinea you have in your pocket depends 
wholly on the default of a guinea in your neighbour's 
pocket." 1 And the final sociological truth is that 
" savings" in the last resort represent a power to ex- 
tort the labour of those who have been unable to 
" save," from having to toil for bare life from their 
childhood, or being ill-fitted for a life of struggle. 

Nor is this all. Not only does the system of sav- 
ing offer no special security for the continuance of 
industry, but it constitutes a visibly and peculiarly 
disastrous means of misdirecting human energy. Few 
economic hypotheses are more audacious than the 
orthodox assumption that invested " savings " are 
sure to be set to employing labour " productively." 
To begin with, everybody is quite well aware that 
much of the saved claim to wealth passes to borrow- 
ing States, who spend it on implements of slaughter 
which in a generation grow obsolete even at that; 
and to the mere buying of foreign land. But it is 
further notorious that of the annual savings of claim 

1 Unto this Last, ]>. 40. Compare Coleridge: "Half the 
wealth of this country is purely artificial — existing only in 
and on the credit given to it by the integrity and honesty of 
the nation." Table Talk, March 'JOth, 1831. 


to wealth an immense mass passes away, even on the 
bankers' books, in respect of futile undertakings for 
the production of certain forms of wealth. Mill, 
coming in his fourth book 1 to a question with which 
he ought to have grappled in connection with his so- 
called Fundamental Propositions, admits that there 
goes on a great waste of capital in periods of over- 
trading and speculation. Noticing the fact thus late 
in the day, he pronounces it " so simple and con- 
spicuous that some political economists, especially M. 
de Sismondi and Dr. Chalmers, have attended to it 
almost to the exclusion of all other " causes of hind- 
rance to the downward tendenc}^ of profits. But it is 
not merely in " periods " of over-trading that this loss 
goes on : the financial journalists chronicle an annual 
loss of many millions. And this loss takes place be- 
cause the kind of stimulus given by " saving " to pro- 
duction is so ill-related to the real needs of the com- 
munity, setting up as it so often does a speculation on 
increased demand when actual demand seems to be 
provided for. A regimen of consumption would not 
incur these disasters of the regimen of parsimony ; 
that is to say, it would not mean the gambling of 
producers for large hauls on which to subsist by way 
of investment. 

It is only right to admit that these annual mis- 
calculations of capitalists benefit the workers in re- 
spect that they really mean processes of consumption. 
" What is saved is consumed," as the orthodox formula 
has it. And this brings us to one more refutation of 
orthodoxy — of the doctrine, that is to say, that " the 
1 Ch. iv., Of the Tendency of Profits to a Minimum. 


destruction of things is not good for trade." l Seeing 
that the same creed has all along contemplated the 
mere consumption (destruction) of saved capital as 
constituting the benefit derived by the workers from 
capital, we have here a mere dogmatic suicide. 
Orthodoxy is reduced once more to the Leibnitzian 
position that it is " good for trade " to consume at a 
certain rate (else all trade is a perpetuity of disaster), 
but not to consume any quicker ; and that ordinary 
commerce sets the right rate. 

" It is not good for trade," we are told, " to have dresses made 
of material which wears out quickly. For if people did not 
spend their means on buying new dresses, they would spend 
them on giving employment to labour in some other way.'' - 

Why, what does it matter to "trade'' whether I 
employ three men in making dimsy clothes or one in 
making strong clothes and two in making an orrery ? 
The orthodox position frequently resolves itself into 
denying that wanton destruction, e.g., the smashing of 
window-panes, is good for trade. 3 The argument is, 
that the money that has to be spent on mending the 
windows is withheld from the employment of labour 

1 Mr. and Mrs. Marshall, Economics of Industry, p. 17. 
a Ibid. 

'■'• When the main part of this ossay was read to the Political 
Economy circle of the National Liberal Club, the main defence 
offered to the criticism on Mill was that his doctrine, " Demand 
for commodities is not demand for labour," really meant that 
mere destruction of property did not help to employ labour. 
Dut the impartial reader must see, first, that this is not at all 
Mill's drift, and, second, that the doctrine is economically idle. 
It is a part of the wages fund theory. 


of other kinds. But that does not follow. Where 
the spender is one of the " saving " class, the pre- 
sumption is that he merely fails to " save " the money 
in question. Had he saved it, that amount of claim 
to wealth might have lain idle in the bank for weeks 
or months, or been borrowed by a gambler ; or it 
might have gone to employ labour in making gun- 
powder in Russia, or to employ or over-employ some 
labour at home. In the former cases it gave no im- 
pulse to production. In the latter case the invest- 
ment would come to the same thing with the spending 
labour in either case was employed, whether to make 
new panes not in demand or to put panes into sashes. 
The only difference would be that in the process of 
investment part of the claim was diverted to the 
maintenance of the banking class. Since " what is 
saved is consumed," the question comes to this, Which 
class is to do any given portion of the consuming ? 
In a community where the burdens of labour fell up- 
on all, the breaking of window-panes would be a 
waste of labour representing a common loss ; but in a 
community where one section has accumulated a mass 
of claim to future services, and is concerned to get for 
its transferred claim a perpetual tribute of new claim, 
those who have no accumulated claim are employed 
or unemployed just as their employers see chances of 
accumulating claim by production. And as employ- 
ment is clearly more abundant when consumption is 
abundant, and often dwindles while there is plenty of 
" saving's " seeking investment, it is clear that no 
stimulus to demand in one direction need necessarily 
check it in another, and that no drain on savings need 

THE worker's side. 97 

necessarily check profitable production. Of course, 
in practice it does do so when the savers decide to 
consume still less ; but the fact that such abstinence 
checks production is the refutation of the doctrine 
that saving promotes production. The economic 
sophist cannot be allowed to employ both arguments 
alternately. What is clear is that the consumer, 
whether he saves or spends, is considering merely his 
own private interest, and not at all that of the com- 
munity. And why should the economist suddenly 
demand from the workman an other-regarding 
scrupulosity which he never suggests to the man who 
saves ? It is idle. A broken pane is a means of 
putting so much consumption in the way of the 
glazier. And as the problem for each labour class is 
just to do its share of consuming the " remuneratory 
capital " available, the glaziers must needs rejoice 
when the stress of a riot falls on windows and not on 

The spectacle is, indeed, painful from the point of 
view of an enlightened humanism ; but that stand- 
point cannot be taken by the advocate of the principle 
of saving for productive investment. When the 
motive force of " saved " money capital is not being 
spent on pure futility, it is as often as not producing 
bad goods to undersell better. In commerce, under 
the regimen of parsimony, every producer seeks to 
produce as much as possible without consuming any 
more of the products that others are multiplying, 
much less calling for new products of a higher order 
which might divert labour from the abundant sorts. 
The Smithian economists insist that " general " ovcr- 



production is impossible, meaning really " universal " 
over-production. J. B. Say and Ricardo established 
the doctrine that, as goods exchange for goods, all 
supply is demand, and over-production is impossible x 
— a tenacious fallacy, consequent on the inveterate 
evasion of the plain fact that men want for their 
goods, not merely some other goods to consume, but 
further, some credit or abstract claim to future wealth, 
goods, or services. This all want as a surplus or 
bonus, and this surplus cannot be represented for all 
in present goods. On Say's theory, there could be no 
profit save what was immediately realised by extra 
consumption, and such consumption he deprecated. 
In Mill's hands, the sophism loses none of its out- 
rageousness. Proceeding complacently, like his pre- 
decessors, to refute those who pointed to the glaring 
evils of gluts, he triumphantly explains that if only 
other things were as freely produced there would be 

1 Say, Traite, L. I. ch. xv., Des DebouchSs. Ricardo, Principles, 
ch. xxi. It is noteworthy, however, that Ricardo modified his 
first emphatic statement. In his first edition (p. 3G2) he writes : 
" Productions are always bought by productions or by services ; 
money is only the medium by which the exchange is effected. 
Hence the increased production being always accompanied by 
a correspondingly increased ability to get and consume, there is 
no possibility of over-production." The passage is thus cpuoted 
by Messrs. Mummery and Hobson, whose book is described in 
our next chapter. But in the second and later editions the 
second sentence disappears, and the argument simply goes on to 
the effect that "too much of a. particular commodity may be 
produced," but not of all commodities, which is an idle truism. 
J. B. Say also notes that the commodities required to buy 
others must be "of the right sort," which reduces the general 
doctrine to a quibble. 


no gluts. And this comfort is offered to the thousands 
of producers who know that their products are often 
in excess of effective demand, in the face of the 
mathematical certainty that all other products cannot 
be so multiplied. Mill himself, in his worst manner, l 
points out that money is a commodity like another, 
and that a superfluity of that would mean rising 
prices, which would negate a glut. He might have 
added that land (to say nothing of credits) is a com- 
modity not producible in excess of demand. He is 
arguing that there will be no glut if everything is 
multiplied, when he knows everything cannot be. 
And while perpetrating this paralogism, and making 
the incredible assumption that his opponents were 
afraid of universal over-production, he writes of the 
" fatal misconception " which has " spread like a veil 
between them and the more difficult portions of the 
subject, not suffering one ray of light to penetrate." 

In Mill's case the optimistic doctrine is peculiarly 
preposterous, because, as we have seen, he had before 
laid it down that the only way in which capital couM 
keep industry always going, was by employing labour 
at first hand without profit. But if in Mill's case the 
capitalists had to ignore one chapter in order to deri\ e 

1 B. III., ch. xiv. sec. 2. Sismondi (Etudes snr I'Economie 
Politigpte, 1837, i., 79 ; iii., 314) advanced the very fact of the im- 
possibility of exchanging I he same kind <>f goods ad mftnitum in a 
fixed population as a plain refutation of the sophism that all 
supply is demand. So Stirling (Philosophy of Trade, p. 55) 
pointed out in 1840, that "labour and the products of agri- 
culture cannot be increased in the same ratio or with the same 
facility as the products of manufacturing industry." 


encouragement from another, they had a more single- 
minded support elsewhere. Ricardo explicitly set 
forth, 1 (and this proposition he did not recast) that 
" .Mr. Say has most satisfactorily shown that there is 
no amount of capital which may not be employed in 
a country, because demand is only limited by pro- 
duction." True, even Ricardo found Mr. Say im- 
perfectly sound in his own faith. 

" Is the following," he asks in a footnote, "quite consistent 
with Mr. Say's principle ? ' Hie more [that] disposable capitals 
are abundemt in proportion to the extent of employment for them, 
the more will the rate of interest on loans of capital fall' — (Traite 
ii., 108). If capital to any extent can be employed in a country, 
how can it be said to be abundant, compared with the extent of 
employment for it ? " 

How indeed ! And how could Ricardo leave the 
matter with that comment, knowing as he did that 
lendable "capital " did vary in abundance? By im- 
plication, he would have to answer that the under- 
takers had merely failed to employ capital as they 
might — a proposition disallowed by his whole habit 
of economic reasoning. The truth is, that Say's ex- 
pression was a fresh surrender of his doctrine that 
supply is demand, for if he repeated the sophism that 
what was wanted was production of a different sort 
of commodities, he had no way of explaining why 
these commodities were not produced when capital was 
admittedly available — no way, that is, save admitting 
that consumption-demand is the limit of each kind 
of production. Nor could Ricardo offer any other 

1 As last cited. 


explanation. But, committed like the rest to the 
gospel of saving and investment, he allowed the old 
doctrine of unlimited saving to stand in the teeth of 
the current refutations, and the undertakers held by 
the doctrine that chimed with their main inclinations 
— that is, if they thought of doctrine at all. 

Whether or not they study the economists, the pro- 
ducers of popular goods have chronically exemplified 
the fatal tendency of the " saving " ideal towards the 
stage of carrying the industrial head under the in- 
dustrial arm. Periodically do they find themselves 
outrunning demand ; and though there does now seem 
to be a tendency towards rational organisation, it must 
be hard for the capital-hunter to keep short of fatality 
while the regimen of parsimony subsists. Over-pro- 
duction is chronic ; and all the while, in the face of 
that kaleidoscopic principle that lie who supplies also 
demands, the over-producer (master and workman 
alike) is exhorted to sell as far as possible without 
buying, to " save " as much as possible of his wages, or 
the money or credit which he is paid for his goods, so 
as to cause that to be applied to — further production ! 
In that case, does not his capital buy plant or labour ? 
As for the goods produced, why, these must be left to 
the chances of trade. Thus are still more goods pro- 
duced without being consumed, and, in self-preserva- 
tion, inferior goods are produced to undersell the 
others, till at length nothing will serve but the dis- 
missal of workmen. 1 So that, at any one moment of 

1 Doubtless the fall in prices benefits bhe workers before 
the collapse comes, just ,-is waste of capital in bad Bcheraes 
feeds them. Thus it turns out that the miscalculation of 


commercial history, there is either over-production, 
crisis, or strategic check of production ; and all the 
while multitudes are perforce striving not to consume 
what they might, so that they may have something to 
fall back on in sickness or idleness. And all the more 
surely the idleness comes, and they do fall back on it. 
And thus life is narrowed and degraded, products 
made poorer, dwellings more paltry, so that the 
collective " comfort " of the industrial population is 
something immeasurably ignoble, like the pullulating 
of rabbits and mice. A great industrial city of to-day 
represents a povert} 7 -, in some of the main elements of 
pleasurable life, such as would have appalled a Greek 
or Roman : the 'public wealth of the greatest city in 
the industrial era is sordid penury compared with 
that of a city of antiquity. 

From the most enlightened commercial standpoint, 
which here coincides with the orthodox economic 
tradition, future development is to be merely a matter 
of multiplying the conditions of cheap existence. 
The forethoughtful trader, that is, sees that production 
of ordinary machine-made commodities is always out- 
running demand ; and puts his faith only in " new 
markets " for these same commodities, in Africa or 
elsewhere. Even Mill, after all his polemic about em- 
ploying bricklayers, and the impossibility of "general" 

the manufacturer, which Smith put on a level with the pro- 
digality of the spendthrift as tending to national impoverishment, 
is, like that, a cause of popular gain. The spendthrift's pur- 
chases, in many cases, go into the second-hand market at greatly 
reduced prices ; and he and the unlucky manufacturer have 
thus both promoted "public opulence," The trouble sets in 
when the manufacturer shuts up his factory. 


gluts, conies at loug last 1 to this view, making no 
attempt to bring it into harmony with his optimism. 
He accepts as " substantially true " the proposition of 
Wakefield 2 that " production is limited not solely by 
the quantity of capital and of labour, but also by the 
extent of the ' field of employment ; ' " and then we 
have this commentary : — 

" The error which seems to me imputable to Mr. Wakefield is 
that of supposing his doctrines to be in contradiction to the prin- 
ciples of the best (!) school of preceding political economists, 
instead of being, as they really are, corollaries from these prin- 
ciples ; though corollaries which, perhaps, would not always have 
been admitted by tliosc political economists themselves." 

Such a vindication of the " preceding " economists 
needs no discussion. The point is that, just as his 
" fundamental " prescription for the employment of 
labour was an indefinite multiplication of work for 
work's sake, so his independent common-sense con- 
clusion is that we can only jog on by opening up new 
markets for the most facile products of labour. With 
all his genuine humane aspiration, he will in no wise 
see that the line of upward progress can only be 
through an ideal of increasing and refining consump- 

1 B. IV., ch. iv., sec. 2. 

- Author of England and America (1834), and editor of an 
edition of Smith's Wealth of Nations. In the former he exposed 
('pp. 74-89J somewhat diffusely, not only the prevailing fallacy 
as to unlimited accumulation of capital, but the glaring contra- 
diction between the doctrine of capital and wages and the actual 
state of things in America. In his edition of Smith (1835, ii., 
387-390) he criticises the doctrine of parsimony, admitting that 
his views were suggested to him by passages of Chalmers, 


tion all round. And what Mill would not see, the 
trader naturally will not. 

There is one last encouragement to the ideal of 
parsimony which should be noticed, by way of con- 
stating all the forces of the situation. In one way, or 
at one point, the saving system can be seen directly 
to add to national wealth — I say national wealth, ad- 
visedly. Mill notes l that in " old countries " the 
tendency to fall in profits " is stopped at the point 
which sends capital abroad." That is the beginning 
of the really public advantage. " Money " lent abroad 
must needs go in the form of home products, in mak- 
ing which the workers get permits to consume ; and 
for these products there comes back, in a certain num- 
ber of cases, an annual tribute of interest in the shape 
of foreign products, wdiich are thus cheapened to us 
in general. Of course foreign investments in English 
stocks and industries draw a tribute from us per 
contra, but the Board of Trade returns thus far show 
a surplus of imports over exports (whereat the blun- 
derers lament) ; and while the experts can give the 
true interpretation of this, the " saving " class are not 
likely to be discountenanced in their ideal by the con- 
sideration that the gain comes of a perpetual lien on 
the labour of alien poor. Thus is the economic fallacy 
buttressed. 2 

1 B. IV., ch. v., sec. 1. 

2 The argument is so used by Dr. Walcker (Lchrbuch, p. 37). 
He notes that " a rich Englishman may buy Russian railway 
preferences, and thereby promote the well-being of the English 
people with cheaper Russian corn." But he does not stay to 
ask what is the effect on the well-being of the Russian people. 
In the terms of the case, it must be to make corn dearer to them. 



Since this essay was first written, there has appeared 
a treatise which so ably and effectively sets forth the 
same doctrine, that only the difference in my method 
of approach makes the publication of mine still advis- 
able. It is The Physiology of Industry, by Messrs. 
A. F. Mummery and J. A. Hobson. 1 " An Exposure of 
Certain Fallacies in Existing Theories of Economics " is 
the sub-title; and the fallacies exposed are in particu- 
lar those dealt with in the foregoing chapters. But 
Messrs. Mummery and Hobson have made their 
analysis, as it were, from the other end, taking the 
received doctrine and comparing it with the actual 
processes of industry, both abstractly and concretely, 
analysing rather these processes than the teaching 
which misrepresents them, and finally grounding their 
refutation on their exposition of the real processes of 
the industrial system in the concrete. It is the more 
satisfactory to me, and it will perhaps be the more 
noteworthy to the reader, that from the different 
lines of approach the conclusion as to the Fallacy of 
Saving is arrived at with equal emphasis in both 

1 London : John Murray. 1889. 


Messrs. Mummery and Hobson, without dwelling on 
the history of the doctrine of parsimony, attack it in 
John Mill's statement as I have done, but they give 
us the profit of a confirmatory argument by working 
consistently on those definitions of capital and saving 
which were set forth, but not consistently adhered to, 
by the older economists. They confute Mill and the 
later writers as Lauderdale confuted Smith. I can- 
not think that the use of this definition in a general 
discussion is the best way of enlightening the ingenu- 
ous student ; at all events, I have sought to impress 
on him that the old definitions of capital and saving 
do not quadrate with the facts and the speech of 
everyday affairs. But for the purpose of confutation, 
Messrs. Mummery and Hobson's method is irresist- 

Capital they define, x after a survey of the diffi- 
culties and exigencies of the case, as " (1) Raw 
material and goods in their various stages of de- 
velopment, including shop-goods ; (2) plant and all 
machinery ; " and saving they define 2 as " the differ- 
ence between what is produced and what is con- 
sumed. The correct formula is as follows : production 
— consumption = savings." On these definitions the 
old doctrine can be tested with the utmost logical 
rigour. As the authors observe, 3 capital " has been 
described as ' the result of saving' by those who have 
not yet explained what saving means, and who after- 
wards appear to include in savings, the food which is 
not saved but consumed by labourers." Their own 
definition precludes confusion by clearly excluding 
1 Page 34. - Paw 30. » Page 31. 


the process of what commonly passes for saving, i.e., 
the " putting-by " of money or credits. And on tins 
basis it becomes instantly apparent that, as they put 
it, " A belief in the infinite possibility of saving 
implies a belief in the infinite increase of consump- 
tion," 1 precisely what the exhortation to saving- aims 
at limiting. Messrs. Mummery and Hobson here 
seize and expose the fallacy as I have sought to do 
in the opening examination of Smith ; noting in 
turn that Mill's doctrine of saving stultifies itself, 
inasmuch as 

"The new labourers have already got a stock of necessaries 
provided for them in the new wages fund, constantly maintained 
by a continuance of the former abstinence of the capitalists. 
The wealth, then, which the new labourers produce must either 
go to provide luxuries for themselves or for the old class of 
labourers, or it must provide luxuries for the capitalists, who 
will thus be obliged to revoke their vow of abstinence. To one 
or two, or all of these uses, it must be put, and in any case it 
will be unproductively consumed in the shape of luxuries." 2 

In fine, we may put it that Mill's doctrine in 
practice would work out the artificial and gratuitous 
multiplication of the poorest sort of labourers, 3 which 
we know was certainly not his social ideal. And as 
to Mill's successors, Messrs. Mummery and Hobson, 
too, note 4 how, " strange to say, those who have most 
distinctly repudiated the wage fund theory have 
retained the theory of the possibility of infinite 
saving, which depended on it." On the general sur- 
vey of the broad relation of production to consump- 
tion, they themselves sum up 6 that "if increa <-'l 

1 Page :J7. - Page 45. ;; Page 49. ' Page 46. B Page 61. 


thrift or caution induces people to save more in the 
present, they must consent to consume more in the 
future." That is, of course, as regards ' : the produc- 
tion and consumption of the entire community;" 1 for, 
of course, as between individuals, the balancing 
consumption can be and is done by others than the 
savers in so far as it is finally done at all. 

Now comes the independent analysis of "the 
physiology of production," in which it appears that 
'• to the maker and the trader, goods, raw material, 
plant, etc., are valued exclusively for the more or less 
of purchasing power which they afford to their 
owners," and that, " from the point of view of the 
individual tradesman, all acts of sale and purchase 
are primarily exchanges of forms of this purchasing 
power." Thus, the price the baker gets for his bread 
keeps his capital intact when the bread is sold, the 
capital being merely in a constant alternation of 
forms ; and only the act of consumption extinguishes 
a portion of purchasing power and annihilates " a 
portion of the total stock of wealth of the com- 
munity." 2 (To be more strictly accurate, it should 
be put that the baker is always slightly increasing 
his purchasing power or capital in respect of his 
profit on sales, and that he may or may not con- 
tinuously extinguish the increase by his private 
consumption.) Two propositions are in this way 
established : — 

"Firstly, that an exercise of demand (for commodities) can - 
not diminish capital; secondly, that an exercise of demand, 

1 Page 53. 2 Pages 60, 61. 


though it consumes a portion of previously existent wealth and 
annihilates a portion of purchasing power, causes the production 
of an equivalent amount of new forms of wealth and pur- 
chasing power" — 

that is, in respect that the act of purchase passes 
back as a wave of impetus along the whole producing 
series to the first member of it, and causes fresh pro- 
duction. I have said that Messrs. Mummery and 
Hobson consistently apply the definition of capital 
as a set of concretes ; but it is not quite clear that 
they do so at this point. We are here in face of a 
constant transmutation of a concrete into an abstract, 
and vice versa ; and the act of consuming a portion of 
concrete stock (till then = capital) is balanced by 
setting in motion an abstract force, which is the only 
representative of the given amount of capital till the 
new stock is made. Is not capital then here some- 
thing else as well as what it was defined to be ? 
True, the authors have pointed out * that when half 
the machines in a factory are idle, or all are used 
only at half-time or half -pressure, " the real capital 
consists in half the machines, the other half being 
surplus or nominal capital;" and as they show (as 
di<l Lauderdale), that there may easily be concrete 
fixed capital of certain sorts in excess of the existing 
needs of the whole community, it would follow that 
whun "purchasing power" in the form of saved 
credit is in excess of the industrial needs of the time 
(which we have seen is constantly the case), such 
excess is only nominal and not real capital. But that 

1 Page 35. 


does not alter the fact that just as the unused 
machines still figure as capital in the owner's esti- 
mate, so the superfluous saved money-credit figures 
as capital. And though, as we have decided, the 
superfluous saved money-credit would immensely 
raise prices if it were all at once sought to be realised 
in any or all of the existing forms of concrete wealth, 
thus demonstrating its illusoriness, yet any one por- 
tion of it still subsists as purchasing power, and it is 
impossible to say what portions of it are " real " 
capital and what are not. And this brings us back to 
the question of what is realty the best definition of 
capital. The question is not, it has been well said, 
What is capital, but What is capital to be ? Messrs. 
Mummery and Hobson write : — 

"If we are unable to say whether a particular piece of wealth 
which exists is or is not at the present time capital, it is absurd 
to maintain that our term capital can be a useful part of our 
economic nomenclature.'' 1 

But is not the philosophic form of statement just 
this, that a particular piece of wealth, or, in Mr. 
Macleod's phrase, any economic quantity, is or is 
not capital according as it stands or does not stand in 
the " capital " or " principal '' relation to an industrial 
or commercial process ? Defined in this way, capital 
is as clearly specified as any concept whatever, and 
we are at once delivered from all concrete confusion, 
to the great gain of economic logic. The word will 
cover, at need, alike concretes and abstracts, goods 
and plant and credit and claim. And the only stipu- 

1 Page 31. 


lation necessary to be made all round is that all 
writers shall make an end of the pretence of adding 
up "the capital of the country," and of the use of 
language about " additions to the total capital of the 
country," — verbal processes which were always prac- 
tically absurd, and are now specifically so. Defined 
as above — and this, I maintain, is the only philo- 
sophic definition — general or national capital is an 
infinity ; and if we are to total anything included in 
it, it must be specifically, as plant, and stock, and 
machine-power, and water-power, and acreage, and 
productivity, and working hands. To add up credit 
or claim is futile. And Messrs. Mummery and 
Hobson, it seems to me, are finally committed to this 
reasoning and this definition. They explicitly state 1 
that " since the community, as a whole, can never con- 
sume more 'subsistence, convenience, and amusements' 
than it has actually produced, it is obvious that the 
community [ = the whole industrial public, not the 
nation as a receiver and spender through its political 
executive] can never live beyond its income." But 
the same line of analysis works out the conclusion 
that the community as a whole can never live beyond 
its capital, since as we have seen every act of effective 
demand, involving a recognised claim, goes to set up 
fresh production, and there is no necessary limit to 
credit. And this truth, as it happens, was formulated 
two hundred years ago, by one Dr. Bifield, cited by 
Lauderdale. A person, says Bifield, can waste his 
stock, " because his waste is finite : but the stock of 
a nation is infinite, and can never be consumed ; for 
1 Page 78. 


what is infinite can neither receive addition by par- 
simony, nor suffer diminution by prodigality." 1 This 
was written in 1690. The 'mills of economics have 
ground exceeding slow. 

So much for theory. As to practice, Messrs. 
Mummery and Hobson sum up dead against the 
doctrine of parsimony. Treating Mill's worst formula 
with the greatest consideration, they observe 2 that he 
" rightly contended that the demand for shop goods 
was not the demand for the labour which had pre- 
viously produced them " (a pleasing truism which, I 
suppose, expresses the elusive truth recognised in the 
doctrine by Mr. Leslie Stephen); and they point out 
that " it by no means follows that present demand for 
shop goods is not the source of present demand for 
labour," but that, on the contrary, " the use of natural 
agents, capital, and labour, produces commodities, and 
demand for these commodities is demand for the 
[further] use of the requisites of production." 3 And 
now comes the sociological conclusion 4 : — 

''The identification of depression in trade with insufficient 
consumption or excessive thrift is, we venture to assert, un- 
assailable. . . . This conclusion is of critical importance to the 
community : it means neither more nor less than that the com- 
munity could at once and permanently enjoy a larger income. It 
means that the East End problem, with its concomitants of vice 
and misery, is traced to its economic cause, and that this 
economic cause is the most respectable and highly extolled 
virtue of thrift." 

1 A Discourse of Trade, by H. Bifield, M.D., printed 1690, 
cited by Lauderdale, p. 222, note. 

2 Pa<?e 92. 3 Pa^e 95. 4 Pa^e 99. 


Substantially as I am in agreement with this con- 
clusion in its economics, I will take leave to suggest 
certain qualifications which are necessary to make it 
strictly accurate. First of all, it is necessary to keep 
in view that the under-consumption which is specified 
as the cause of trade depression must not be under- 
stood as a regrettable under-consumption of the things 
of which there is a glut. This brings us to the grain 
of truth involved (unconsciously to them) in the old 
optimists' maxim, that the cure for a glut was ex- 
tended production of the things of which there is not 
a glut. Not that the cure would or could operate as 
they supposed. The one way, on their principles, to 
cure a glut of boots and hats would be to consume 
these wastefully in exchange against other things, 
since mere increase of population, though thus en- 
couraged by implication, could only after an interval 
of time dispose of a present overplus. And the in- 
crease of population, on the old lines of parsimony 
and production, could mean ultimately nothing but 
new and greater periodic gluts. The real cure, as 
regards the labour-market, would be by way of ex- 
tension of demand to objects not readily produced in 
excess ; such as superior hand-made goods and pro- 
ducts of art of all kinds. Here a glut is impossible, 
provided only that the standard of taste goes on 
rising with the many as it has done with the few. 
Art is longer than life, and there lies the true philo- 
sopher's stone of perpetual industry — the reaching 
towards an end forever unattained. It is nut quantity 
but hind of consumption, the setting up a continuous 
demand which shall withdraw Labour from the fatally 


easy fruitions of the mechanical manufacture of com- 
mon necessaries, that will prevent chronic depression 
of trade. And such ever-rising standard of demand, 
it is obvious, is impossible without such a restraint of 
the rate of increase of population as shall give scope 
for the play of the higher and subtler needs without 
fatal encroachment on the part of the simpler and 
lower. These things Messrs. Mummery and Hobson 
should have stated as sociologists, since it is their 
aim and their merit to carry their economics into 

Secondly, they overstate the sociological, and there- 
fore the economic, case for consumption when they 
teach that simple increase of consumption may solve 
the " East End problem." For one thing, large families 
must always mean relative poverty under a wage- 
earning system, and, if numerous, comparative poverty, 
up to the revulsion point, in a socialistic system. For 
another thing, it must not be forgotten (some im- 
patient readers, it may be, have long ere this accused 
us of forgetting) that old people cannot work to their 
last day for their own support, and that under a 
regimen of increased and increasing consumption, 
while healthy wage-earners (barring over-population) 
will certainly have a better income, there will be ne- 
cessitated a new social machinery for supporting the 
aged. At present the aged poor (such as can become 
aged) go to the workhouse, or subsist painfully on 
small club allowances, while the less poor subsist on 
the fruits of their savings, that is, on the interest of 
their accumulated money-claim on the services of 
others. Now, it is idle to suppose that while the 


workhouse remains the only common provision for 
old age, those capable of saving will abstain from 
doing so. The instinct of self-preservation will 
continue to assert itself; and either the battle 
of saving will be intensified as more and more 
persons accumulate claim, or there will ensue such 
demoralisation of the wage-earning proletariat as 
took place in the proletariat of ancient Rome, unless 
a rational system of corporate action be developed. 
One or other of these three courses our civilisation 
must take ; because even the all-essential restraint of 
population cannot alone secure that all who work 
shall have a moiety of the comfort now enjoyed by 
those who do not work at all, though it would 
greatly modify the atrocity of the present scramble 
for employment and the misery of the lower 
strata. Even a controlled population acting on the 
principle of parsimony will be one in which ma- 
chinery will rapidly overtake the total demand for 
necessaries, as it has already overtaken again and 
again the effective demand, .so that even in such a 
society there would be, barring organisation, chronic 
industrial crises. A rising demand for the higher 
products is as essential as control of procreation. 
Moreover, the struggle of saving would grow more 
and more internecine in a community in which re- 
straint of population minimised the helpless mass, 
and he who would live on his investments must save 
more and more to outsave his competitors, in the 
words of Messrs. Mummery and Hobson, 1 " Each is 
competing against the other; each is seeking t<> do 

1 Pa^e 112. 


himself the largest portion of the useful saving." But 
when there is any constant quantity of economically 
superfluous saving, it is clear, cancelment is in the 
main (allowing for variations of luck) a process affect- 
ing all sums of savings proportionately, and he who 
has the largest total will always have the largest 
amount of effective claim. Thus the struggle must 
go from bad to worse, with no relief but that chroni- 
cally and partially supplied by the annihilation of 
masses of money-credit in desperate enterprises. 

Expanding consumption, then, is not enough : re- 
straint of population must go with it. And it is clear 
that expanding consumption, with or without restraint 
of population, involving, as it must, the surrender of 
the present means of self-preservation for the more or 
less successful in old age, will never be adopted as the 
general ideal until some common provision for old age 
is set on foot. 

In these conclusions, I think, Messrs. Mummery 
and Hobson must acquiesce. It is clearly not enough 
to say, as they do in one place, 1 that " if the community 
wishes to increase its capital, it must consent to in- 
crease its consumption," for there is always going on 
an increase in mass of consumption, and consequently 
in capital in their sense, by force of the mere increase 
of population. To the wider conclusion they are led 
by their demonstration of 

"the fundamental fallacy which underlies the economists' 
view of saving, the assumption that the interests of the com- 
munity must always be identical with the interests of its several 
members. The statement of Adam Smith, 'what is prudence 

1 Page 112. 


in the conduct of a private family can scarce be folly in that of 
a great nation,' has been taken too generally for a gospel truth. 
This view, that a community means nothing more than the 
addition of a number of individual units, and that the interests 
of society can be ascertained by adding together the interests of 
individual members, has led to as grave errors in economics as in 
other branches of sociology." x 

These general conclusions, I submit, have now been 
proved, and no less the particular. 

For the rest, Messrs. Mummery and Hobson supply 
a close and cogent analysis of " Over-Production and 
Economic Checks," which will be found to confirm my 
own more summary statements on that head. Follow- 
ing out the principle of their first chapter, that the 
economics of consumption cannot without fallacy be 
separated from that of production, and that con- 
sumption is really only the closing act of production, 2 
they have really justified their title of The Physiology 
of Industry, which would hardly have been done by 

1 Page 106, citing Smith, B. IV., ch. ii., sec 1. It should be 
noted that Smith, who generally saw the sound as well as the 
unsound view of a case sooner or later, though he so often failed 
to make the proper cancelment, himself remarked in another 
passage that " the merchants knew perfectly well in what 
manner to enrich themselves. It was their business to know it. 
But to know in what manner it enriched the country was no 
part of their business" (B. IV., ch. i., McCulloch's ed., p. 189) ; 
and, still more explicitly, that " the interest of the dealers in any 
particular branch of trade or manufactures is always in some re- 
spect different from, and even opposite to, that of the public " 
(B. I., ch. xi., end). 

2 A view wrought out also by Mr. R. S. Moffat in his 
Erenow 1/ nf Coiisiiiiijilioa, with much convincing illustration and 
great expository power. 


Mr. Stirling bad he called his work, as he at first in- 
tended, The Physiology instead of The Philosophy of 
Trade. They complete the argument, finally, by a 
refutative chapter on " Scarcity of Gold as an Economic 
Factor," to which those readers may turn who feel that 
the arguments of the currency school call for detailed 
answer. I apprehend, however, that those who 
acquiesce in the present argument thus far will not 
demur to my leaving those arguments on one side. 



Already, perhaps, the reader, in accepting the argu- 
ment, has recoiled in despair from the vast vista of 
social reconstruction which it opens up as the only 
alternative to a long decline towards darkness. He 
may be moved to cry out with Mr. Lang, and with 
perhaps the better justification as having really tried 
to understand the case, that " the social problem is 
insoluble," and that after a few centuries we shall just 
" worry back to barbarism." There is a certain 
sombre fascination in this species of pessimism that 
especially captures the belletrist mind, even that mind 
which, in resentment of other austere philosophies, 
formulates for itself in the name of mythological 
science the doctrine of a divine " Father who is not 
far from anyone of us," 1 and is solaced under the 
pressure of the insoluble social problem by the 
spectacle of the "beautiful Church of England." But 
if the belletrist, who at least realises that there is a 
social problem, is thus impressed by it, we must con- 
fess that it will be hard to bring home to his public 
the falsity of the current economic gospel of saving. 

All the forces of egoism and optimism are on its 
side. As a matter of fact — and this is the real crux 

1 Mr. Lang : Myth, Ritual, and Religion, i. 340. 


of the case, remaining after all the economic fallacies are 
exposed — the average middle-class man has at present 
no way open to him but saving to provide for his old 
age ; that is, the minority must " save " in order to 
live one day on the labour of the majority. If the 
saver buys an annuity, his money seeks investment 
all the same. How make the middle-class multitude 
ever realise that this proceeding of theirs is a saving 
only of abstract purchasing power : how make them 
see, even with the fall of interest before their eyes, 
that the more people save, the nearer nullification will 
be their mutual claims ; that instead of being a means 
by which all can add to the common well-being and 
their own, it is only a process by which a saving min- 
ority can command the services of a non-saving 
majority? These, we have seen, are the facts. The 
increasing " savings " of the working-classes, we repeat 
once more, represent no saved or made property of any 
kind, but an abstract claim to wealth, which to seek at 
once to realise would be to prove the unreality of the 
wealth by immensely raising prices. It is practically 
a claim on services in general, and these services are 
only realisable in so far as alongside of the savers 
there remains a multitude which saves nothing or 
little. Let that multitude save also, and cancelment 
of claim begins to take place all round. But just as 
saving extends, cancelment of claim is proportionally 
going on, the result being that the more A saves the 
more B must save to get the better of him. 

Meantime, the cure prescribed for the workers is 
that they shall not onty be chary of consuming the 
goods which they live by producing, but equally ab- 


stain from consuming high-class goods, the production 
of which would call for labour of a higher class — 
labour which could not be superseded by machinery. 
And their saved money is consequently to be invested 
in the production of only the kinds of goods or ser- 
vices which, so far as parsimony prevails, must of 
necessity be forthcoming, and are for the most part 
only too easily multiplied. Thus their very savings do 
but go to facilitate the crises which throw them idle. 
The more they cause "capital" to abound, too, the 
more nearly impossible it becomes for them to be their 
own capitalists for productive purposes, since the sav- 
ings of the upper classes go the more to form over- 
whelming joint-stock concerns that blight smaller 
undertakings. Thus, on the one hand, we have the 
increasing class of idle rich, living on investments, and 
well-to-do jobbers, living by spurious commerce; and, 
on the other hand, the increasing class of toiling poor, 
who on all hands are taught to aim at investments 
likewise, but only here and there to limit their rate of 
increase and raise their standards of comfort, though 
only by these last courses can they, under any con- 
ceivable regimen, countervail the constant extension 
of labour-saving machinery, and make new labour in- 
dependent of the capital of the idlers. We are in such 
an impasse that even if the National Debt were rapidly 
paid off by way of removing a burden from industry, 
the result must needs be the throwing idle of many 
thousands, through the stinting of the consumption of 
fundholders left without investments, unless one of 
two courses were pursued. Either (a) the principle of 
parsimony must be generally abandoned, and the 


majority must demand high-class goods or services 
which should be more or less providable by those who 
formerly provided nominally high-class goods or 
services for the f undholders ; or (b) the State or the 
municipalities must institute important public works 
(such as civic reconstruction, with good working-class 
houses, or comprehensive sewage-schemes), which 
should extensively employ and train inexpert labour. 
Indeed, it is clear that the contingency could not be 
met save by the action of both these general factors : 
the workers must consume if production is to be kept 
up. And, finally, restraint of propagation is an indis- 
pensable condition of the maintenance of the improved 
state of affairs. 

Now, is there any prospect at present, in the face of 
the faith in parsimony, that either, on the one hand, 
the State or the municipalities will institute the 
necessary" constructive works (which would of course 
have to be based on an extended taxation of rent and 
incomes), or that, on the other hand, the general 
public will recast its standards of life and insist on 
consuming and therefore producing more good things ? 
Is there, again, any prospect that the State or the 
municipalities will institute a system of provision for 
old age and sickness, not by a scheme of insurance 
fallaciously resting on blind investment, but on a 
system of calculated production of the things people 
need ? And, finally, is there any prospect that the 
people in general will effect that control of their rate 
of increase without which both of the other rearrange- 
ments would be futile ? 

As our sociology stands, the prospects are certainly 


not bright. Are they then blank ? If so, why, then 
we have been contemplating no mere corrigible fallacy 
of the reason, but a radical fallacy or flaw in human 
things — in life itself. And who outside the school of 
Mr. Lang can accept such a conclusion? 

It is certainly a clamping reflection that most of 
the economists who have been cited as seeing through 
the Fallacy of Saving have negatively or positively 
failed in their prescriptions for society. Lauderdale, 
in arguing down the sinking fund principle, had the 
air of vindicating the National Debt ; Sismondi attacked 
machinery ; Mr. Ruskin has done that and rather 
worse things ; Malthus confessedly approved the insti- 
tution of an idle rich class, and lost weight also by his 
defence of the Corn Laws, though in that his error 
was not absolute, seeing that he recognised the new 
trouble of rapidly multiplied population, to which the 
Free Traders shut their eyes. Chalmers, again, made 
a preposterous proposal for the special support of 
aristocrats ; and nearly all these economists in a way 
seemed to endorse the old notion that labour neces- 
sarily depends on the expenditure of the idle rich — a 
doctrine which Mr. Ruskin has on moral grounds 
gratuitously attacked as being that of the prevailing 
economists (who, as we have seen, did not hold it), 
and which was after all (inly a blundering version of 
the true doctrine of spending enforced by Mr. Ruskin 
himself. Later than Malthus and Chalmers, Mr. 
Moffat, who, like them, has assailed the Fallacy of 
Saving, has decided to credit the landlords with a 
moral right to economic rent as the just reward of 
their activities of superintendence. Nay, even Messrs. 


Mummery and Hobson give one a shock of alarm by 
ottering as an ostensible encouragement to an Eight 
Hours Law, what amounts to a rcductio ad absurdiun 
of that scheme. This, I think, they must admit ; as 
I trust they will admit the other sociological con- 
siderations urged above in connection with their 
conclusions. Their treatment of the Eight Hours 
question brought upon them the keen thrust of Mr. 
Bradlaugh ; and I doubt not they will mend the crack 
in their armour. Any way, however, there arc 
apparently heavy odds against 1113 7 concluding with a 
sound practical solution where so many have either 
failed or stopped short. I can but try. 


An accomplished economistof the individualist school, 
hearing the gist of the foregoing argument read, 
gave it as his opinion that the destructive criticism 
was unanswerable, but that the constructive sug- 
gestions made in the last few pages were unsound. It 
was, I doubt not, the suggestion of State action that 
was in view in this objection, for my critic agreed 
with me as to the absolute necessity of restraint of 
population under any regimen. And I am bound to 
admit that while this necessity is not generally recog- 
nised, State action in the way of providing enrploy- 
ment must needs aggravate the industrial trouble by 
giving a special stimulus to population. Nay more, 
I admit that there are difficulties in the way of resort- 
ing to any fresh form of State employment while the 
State has not the power of interfering in some way 


with over-breeding, even if the necessity of restraint 
be brought home to the majority by voluntary pro- 
paganda such as is going on at present. A certain 
minority would for a time be reckless, and would add 
unfairly to the pressure on the community's labour- 
employing machinery, while profiting by the conscien- 
tiousness of others. 

The practical answer to this argument is twofold. 
To begin with, as I have sought to show elsewhere, 1 
it is morally incumbent on the community to make 
an end of the social injustice that is worked by main- 
taining a National Debt, the interest on which means 
the support of the idle and comfortable classes by the 
poor and laborious. All interest on investments, of 
course, as we have seen in the foregoing analysis, 
means the same thing in the end ; but in the case of 
the National Debt the community is corporately or 
politically responsible, and has it in its power by 
direct and simple action — by the simple process of 
repayment — to put a stop sooner or later to this 
particular form of social parasitism. Now, if this 
moral perception be acted upon, as I think it must be, 
and the Debt be paid off out of special taxation as 
rapidly as possible, an acute industrial trouble would 
arise, unless specially guarded against, in respect of the 
intensified operation of the saving motive among the 
investors whose principal was paid down to them. 
In conformity with the conventional ideal which we 
have been contemplating — or, let us say, on the spur 
of the instinct of self-preservation — they will greatly 
restrict their consumption until they can find new 
1 Mod&rix Humcwdists, Epilogue. 


investments ; and, as we have seen, this must needs 
be a very difficult matter. The immediate result, 
then, will be a serious industrial depression, since 
fallin '--ott* in demand for commodities means falling- 
off in demand for labour. 

It has been objected to my previous exposition 1 that 
when the principal of the Debt is paid off, the taxation 
thereby remitted, on the score of abolished interest- 
pa} T ments, will suffice to provide for the extra con- 
sumption necessary. But this objection overlooks 
three essential points : (1) that in the terms of the 
case there had been extra taxation to provide for 
the payment of the principal, and that this taxation 
would, by parity of reasoning, act as a restrictive of 
consumption; (2) that the restriction would be 
immediate, while the remission of taxation would 
only be prospective ; and (3) that while the ideal of 
saving subsists, there is no security whatever that 
remission of taxation will bring about increased or 
raised consumption on the part of individuals. My 
proposition, then, holds good, that, given a rapid re- 
payment of the National Debt, in the absence of a 
general reform in the matter of consumption, which 
cannot reasonably be expected to take place quickly, 
nothing can avert ruinous industrial depression save 
the creation of a special demand for labour by the 
corporate action of the community. I can understand 
that a determined Individualist will face any amount 
of industrial calamity rather than sanction such a 
resort to the principle of State Socialism ; but I am 
bound to declare that, if the circumstances be admitted 

1 Epilogue cited. 


to be as I say, such determined Individualism amounts 
to a fanaticism of a very deplorable kind. At best, 
the Individualist in such a case is purchasing what 
he regards as safety in the future at the cost of 
frightful misery in the present. That is to say, he 
does this if he assents to the demand that the National 
Debt shall be paid off as rapidly as possible. He has 
the alternative of leaving the National Debt as it is. 
In that case, he seems to me to identify his cause 
with an immense social injustice. Democratic In- 
dividualists, I submit, cannot take up such a position. 
On the other hand, if those who desire to abolish 
the injustice do not accept, along with the principle 
of State employment of labour, that of restriction of 
population, I can see nothing but new evil ahead. If 
they will accept the principle of restraint, I can 
conceive matters going substantially well, even with- 
out the legal enforcement of restraint, a thing difficult 
to arrange under any regimen, and plainly impossible 
in the present state of sociological thought. In view 
of the continuous fall in the birth-rate, along with an 
increase in the number of marriages (a clear result of 
the spread of Neo-Malthusian doctrine), I can conceive 
that public opinion and voluntary propaganda inh- 
ere long so far rationalise the general action that the 
recklessness of the few will not in itself be ruinous, 
and will serve to force on the discussion of the prin- 
ciple of legal interference. The more slowly that 
principle is adopted, the less risk is there of its being 
crudely or arbitrarily reduced to practice. But if the 
majority continue to set their fact's, as ;it present; 
against the very notion of restraint, or tolerate only 


ascetic kinds of restraint which it would be idle to 
prescribe for general adoption, even if they were 
scientifically sound (which they are not), then there 
is no escape from an extension of the old trouble. 
Nothing short of prudence in procreation can ulti- 
mately save the proletariat from chronic hardship. 

And one can but hope that the increasing plainness 
of the dilemma will ere long bring about the enlighten- 
ment of the Liberal politicians who are as yet given 
over to helpless empiricism. Already there are signs 
that the enlightenment is in process. One Liberal 
leader 1 avows an uneasy wish that his party paid 
more heed to the population problem. But the chances 
are at present that this fundamental sociological prin- 
ciple will be forced on national attention in connection 
with a new form of political agitation, which bids 
fair to absorb within itself several others. I mean 
the demand for Old Aire Pensions. 


The rapid extension of the vogue of this proposal 
within the past year or two is one of the few satis- 
factory symptoms in industrial politics, from the 
scientific point of view. For a time it seemed as if 
the demand for an Eight Hours Law was going to 
absorb all the self- regarding political energy of the 
masses ; and the prospect looked sufficiently dark, 
because the very failure which must so speedily dis- 
credit such a measure as that would go to discredit 

1 Mr. John Morley, in a speech to the Eighty Club in 1889. 


democratic schemes in general, and a period of inan- 
ition would follow that of miscalculation. But the 
Old Age Pension scheme has the advantage of appeal- 
ing to the mass of the workers, while being in no way 
opposed to sound economic principle. The Eight 
Hours Law would be an economic absurdity worthy 
of the Middle Ages ; a workers' pension scheme — as 
distinguished, that is, from a system of national in- 
surance — is economically sound. And already, in one 
form or another, it has been declared for by politicians 
of different parties ; on one side, for instance, by Mr. 
Chamberlain ; on the other side, and on sounder lines, 
by Dr. W. A. Hunter, whose sagacious advocacy is 
likely to count for much. But none of its advocates 
has yet pointed out the weighty economic advantages 
it may involve • on the contrary, several of its sup- 
porters are so far from seeing these that they regard 
them as imaginary drawbacks, against fear of which 
the public must be reassured. Mr. Sidney Webb and 
Mr. Charles Booth, for instance, expressly argue 1 that 
there is no danger of a pension scheme discouraging 
thrift ; the implication being that, with pensions, the 
workers will save more and not less — that is to say, 
will not solidify industry by consuming more and 
better products. But it will be the principal service 
a pension system can render, to encourage the 
workers to consume and not paral} r se production by 
restricting their demand. Evidently we must still 
justify the pension scheme on economic grounds ; and 
such justification is the more necessary because there 

1 Mr. Webb in the Contempora/ry Review, -Inly, 1890, pp, 
103-4 ; Mr. Booth in .-i paper whioh I have nol Been. 



are still some publicists who oppose the pension prin- 
ciple all round. 

Of these the most prominent is Mr. C. S. Loch, 
Secretary of the London Charity Organisation Society. 
Mr. Loch, who has given much professional study to 
the phenomena of pauperism, is convinced that it is 
largely " created " by loose methods of poor-relief, and 
argues l that a national pension system would tend to 
manufacture it. In so far as the risk is alleged to 
arise in terms of the difficulty of escaping malinger- 
ing, even among persons over sixty, the point need 
not be disputed. Mr. Loch's conclusion is that 

"To establish an annuity system, and not to prohibit out-door 
relief to the able-bodied, or perhaps to all but those who require 
medical out-relief, would be to foster a hybrid pauperism, in 
part maintained by the rates, in part by imperial and local 
taxes." 2 

So be it — barring only the point as to what es- 
sentially constitutes pauperism. Let it be provided 
that under an adequate pension system out-door re- 
lief to the able-bodied shall cease. But Mr. Loch's 
theory of pauperism calls for further examination. 
Looking at the problem from the standpoint of em- 
pirical ethics, he sees in it mainly an outcome of 
individual fault ; and, what is more, he supposes that 
the faults in question, as society is now organised, 
constitute a source of unrelieved individual burden to 
all who pay the taxes which relieve paupers. But 

1 Old A'je Pensions and Pauperism (Sonnenschein & Co. 1892), 
piss' UK 
a Pae:e41. 


that this is not so will be already clear to many who 
have followed the foregoing economic analysis. 

Mr. Loch cites 1 as typically or generally valid 
an enquiry which discriminates city pauperism as 
follows : — 

" Pauperism caused by old age or infirmity, without any dis- 
credit, explained nearly one-eighth of the pauperism of the town- 
ship ; pauperism by disease (not brought on by misconduct) or 
accidental injuries, involving inability to work, accounted for 
one-seventh; drunkenness explained 51 '24 per cent." 

Now, it of course never occurs to Mr. Loch that 
this latter section of pauperism represents anything 
but an infliction of loss on well-to-do ratepayers 
generally. He would take that view, presumably, of 
pauperism attributed to mere improvidence, apart 
from drunkenness : much more would he take it of 
drunkenness. And yet it is easy to show that, inas- 
much as we have seen the spenders tend to keep in- 
dustry going while the savers tend to paralyse it by 
checking consumption and market demand, the victims 
of improvidence have really sacrificed themselves (un 
knowingly, of course) to the advantage of the pro- 
vident. Had the whole population been alike bent 
on saving, the total saved would positively have beeD 
much less, inasmuch as (other tendencies remaining 
the same) industrial paralysis would have been 
reached sooner or oftener, profits would be less, in- 
terest much lower, and earnings smaller and more 
precarious. This, as the reader of the foregoing 
chapters has seen, is no idle paradox, but the strictest 

1 Page M. 


economic truth. It follows, then, that since the 
spendthrifts facilitate the accumulations of the 
savers, the pauper class, in so far as its members 
have been industrious but " unthrifty " workers, has 
all along been contributing to the general prosperity 
as far as it could, while the more fortunate savers 
have as such been doing the reverse. The savers, in 
short, have as such been living on the spenders. Of 
course they also have been to some extent spending ; 
and they may also have been industriously producing ; 
but in the nature of the case they got their accumu- 
lation of purchasing power from those who pa/rted 
ivith it, and their accumulations subsist only in so far 
as the majority has been willing to go on spending. 
To go back to Mr. Ruskin's words, their savings are 
valid in virtue of the defect of saving in others. 

Apply this to the case of the pauper class, and it 
will be seen that even the drunkards have been put- 
ting purchasing power in the hands of others. Of 
the "saved" capital or money- credit owned among 
the upper classes, enormous sums have come from the 
drink trade. I suppose that even among those who 
hold devoutly to the doctrine of saving there will be 
hesitation in applauding the brewers and distillers 
and publicans for their services in amassing capital. 
But in the light of economic analysis it becomes a 
peculiarly preposterous hypocris} 7 to speak of the top- 
ing pauper as typically a burden on society while the 
brewer and publican are treated as bearers of the 

It will not be supposed, of course, that I deny 
the cumulative infelicity of expenditure on drink. 


Clearly it not only yields the most transient satisfac- 
tions at best, but on the other hand actively negates 
well-being to the extent of three-fourths of the con- 
sumption. But the student has now realised that if 
all intoxicants were totally abstained from, industrial 
hardship could only be averted by the setting-up of 
fresh consumption, which would constitute demand 
for the labour thrown idle. And the temperance 
party must be reminded that it does not at all follow 
that the grain unconsumed by brewers and distillers 
would continue to be produced, and so lower food 
prices. That only is- produced for which there is 
market demand. Of course the reformed topers 
would consume more bread, but that would be all. 

We are now in a position to pass judgment on Mr. 
Loch's conception of pauperism, as bearing on his op- 
position to a pension system. He is wrong even in 
his implicit notion that improvidence annihilates pur- 
chasing power and lessens the total command of 
society over wealth and services. He is therefore 
doubly wrong in his proposition 1 that under a national 
pension system the present " pauper pensioner would 
become a pensioner-pauper," and that "pauper he 
would remain under both guises." That is to sa}-, 
Mr. Loch is wrong in implying as he unavoidably 
does that the man who works while he can, and then 
draws from the public treasury, lias deserve 1 ill of 
society. It cannot be too emphatically declared thai 
the true "paupers" arc those who, having done no 
work whatever, subsist on the interest "I' savings 
made by others. We have seen, indeed, that all 
1 Page WT~ 


subsistence on interest means in practice subsistence 
on others' industry ; but inasmuch as investment at 
interest is the principal means of providing for old 
age, those who thus secure themselves are only get- 
ting what, broadly speaking, they are entitled to — 
setting aside, that is, the question of just share. 
When, however, we deal with those who have in- 
herited money-capital, and, themselves able-bodied, 
live idly on its interest, the same defence does not 
hold. They consume services and render none ; and 
if any are to be socially and economically disparaged, 
it is the}^. I have no wish, indeed, to set up a dis- 
paragement which would in its turn operate unjustly, 
inasmuch as the idle livers on investments are 
actually doing the economic best open to them, in 
many cases, when they spend without accumulating 
further. But if we are to be considerate to these, 
let us be just to those workers who do unquestionably 
render service to the community before they idly con- 
sume services. Mr. Loch quotes former Poor Law 
Committee-men as pointing out that certain forms of 
poor relief are " premiums upon indolence and vice." 
If there be any meaning in words, our systems of 
land accumulation and free bequest of money-capital 
are premiums upon indolence and vice, fostering both 
in the highest degree ; yet it never occurs to the 
critics in question to say so. On the other hand, the 
relatively much smaller risk of promoting indolence 
and vice by a national pension system can be guarded 
against, and will be increasingly so in practice, by 
public interest inspiring public criticism. 

Mr. Loch's general objection to a national pension 


system, then, breaks down alike morally and economi- 
cally, he having, indeed, no economic light on the 
subject at all. But there is a general objection which 
he might very well have made — that, namely, which 
has been above indicated in connecting the pension 
scheme with the population problem. The omission 
all round to raise the population difficulty is at least 
a proof of the falsity of the common assertion that 
that principle is usually employed as a means of 
rebutting proposals made in the interests of the 
people. I do not here employ it with any such pur- 
pose. Rather I bring it forward in the belief that 
fie growing acceptance of the pension principle will 
be the most effective means of bringing home the 
population principle to the general intelligence. 
Those who have hitherto refused to face it must then 
do so. Any measure of systematic State provision for 
the necessities of the people will constitute a clear 
national risk, unless at the same time the need for 
limitation of rate of increase is generally recognised. 
Of late years there has been an economic conspiracy of 
silence, or worse, on the subject ; and even enlightened 
writers like Professor Marshall and Professor Sidgwick 
either obscure the issue or deny the solution. In his 
latest work Professor Sidgwick makes the astonishing 
declaration that in the present state of civilisation he 
considers the increase of human life "in the world" 
as a good and not as an evil. l Since he at the same 
time admits that some day it is likely to be necessary 
to restrict population, he is committed, in the very act 
of encouraging increase, t<> the view that such increase 
1 EU merits of Politics, p. 304. 


tends to become a danger. That is to say, the position 
of civilisation is going to get worse and not better. 
Yet it lies on the face of the case that such wqrsen- 
ment can only appear under the guise of poverty 
and struggle for subsistence, phenomena which are 
glaringly apparent in the present state of civilisation, 
in which Professor Sidgwick thinks all increase of 
population is a good. 

The fact is, it appears, that Professor Sidgwick 
makes the ordinary empiric's confusion between gross 
and net increase of population. He has not realised 
that a restriction of gross increase of population is 
compatible with a continued net increase of popula- 
tion, in respect that of the fewer children born a 
larger proportion can subsist. This lesson is of the 
very essence of the Neo-Malthusian docti-ine. 1 But 
even if we consider the demand for a continued net 
increase of population, it is plain that it rests, even 
when put forward by a thinker like Professor Sidg- 
wick, on no scientific estimate of good and evil. The 
first condition of jsuch an estimate is a discrimination of 
the various lots into which human beings are born ; 
but Mr. Sidgwick makes no discrimination whatever. 
Thus can sociology still be written. 


But, even assuming a recognition of the law of 
population, there is still our problem of consumption, 
which the advocates of State pensions leave wholly 

1 See the author's pamphlet on Over-Population (Forder, 
Stonecutter Street). 


out of account, framing as they do a sociological pro- 
position without a study of the economic contingencies. 
With or without limitation of families, we saw, the 
principle of parsimony would lead to economic over- 
production of easily produced necessaries, and the 
principle of parsimony, unless discredited or effectively 
thwarted, would continue to operate widely even 
alongside of a State pension system. Even if pensions 
be withheld from all who have investments — and that 
is a point that must clearly be considered when we 
come to details — those who do the bulk of the present 
" saving " would continue to do so, and the kind of 
consumption possible to the pensioners, at the rates of 
pension thus far proposed, would certainly not per- 
mit of any great raising of the standard of consump- 
tion. So the industrial problem would still subsist, 
and we should soon be led up to the question of doles 
to the unemployed. 

Now, no State could enter on a system of doles to 
the unemployed without rapid demoralisation and no 
less rapid impoverishment. The causes which created 
the lack of employment would subsist under a system 
of doles. Rapidly perishable forms of wealth would 
be freely produced at demand, and still there would be 
idleness, unless among the classes with most purchasing 
power there arose an increasing demand for the higher 
and less easily producible forms of wealth — for 
artistic products, in short. And what present likeli- 
hood is there of these classes thus raising their 
standards of consumption while they have no other 
means than saving and investment of securing for 1 heir 
old age the measure of income that investments might 


yield them ? Plainly, the establishment of pensions for 
the workers is only one side of the process of recon- 
struction ; and we must try to ascertain how the rest 
of the process should go. 

First, we come back to the old principle, otherwise 
arrived at, 1 of a graduated income tax as a necessary 
means towards the payment of the National Debt. 
Here we have at once a means of rectifying plain 
political injustice and of checking under-consumption, 
provided, that is, that we specially tax idle income 
from investments. This is the course prescribed by 
political equity apart from economic sociology, and it 
entirely consists also with the economico-sociological 
prescription. But the taxation of incomes will at first 
necessarily tend to make those taxed spend less on 
consumption ; and here, as before, we are faced by the 
need for special employment of labour. Such employ- 
ment can only be supplied by public action ; and I can 
suggest no better lines of such action than genuine 
public works, such as corporate cultivation of waste 
or withheld lands ; the scientific utilisation of sew- 
age and consequent salvation of rivers ; the proper 
tunnelling of streets for sewage and lighting purposes, 
and the rebuilding of the worst parts of our cities, in- 
cluding in that the erection of good dwellings and 
noble public buildings. 

Thus far we shall provide for the employment of 
unskilled and partially skilled labour generally ; and 
if at the same time we establish a pension system for 
the workers, stipulating that there shall be propor- 
tional deduction where the pensioner has other sources 
1 See Modem Humcuiists, Epilogue. 


of income, we may take it that common consumption 
will be fairly safe. All this, be it observed, comes far 
short of the universal transformation demanded by the 
neck-or- nothing Socialists, who propose the nation- 
alisation of all means of production. That is a trans- 
formation which human nature cannot accomplish 
save by a prolonged course of gradual change : what 
we are here proposing is a set of social departures 
plainly required by the industrial and moral situation, 
and as plainly practicable. The reform of taxation, of 
course, goes upon a principle which equally prescribes 
the nationalisation, as is found feasible, of monopoly- 
sources of profit, such as railways, gas-works, water- 
works, and banks. Merely to nationalise these, and to 
secure the national utilisation of the land, will be hard 
enough work for some generations to come ; and it is 
needless here to anticipate the problems of further 
nationalisation of sources of profit which will arise 
when these have been grappled with. Suffice it to say 
that by all these means the sources of idle living may 
be gradually restricted without any harm to industry 
generally, and even without any violent hardship to 
the idle classes, which will be gradually eliminated. 
The practice of saving will be continued by the non- 
pensioned classes on their own behalf ; but when en 
lightened consumption is more and more generally 
recognised as the right economic and social course, 
there will be a decline in the desire to endow idle 
families — provided only that there are careers open 
which shall yield young people lair chances of living 
in return for services rendered to society. 

And here arises the question whether an extending 


pension system (for I will assume that as the com- 
munity is found to prosper on the new lines, pensions 
will he raised to the workers generally) may alone be 
trusted to secure such raising of the standards of con- 
sumption as shall elicit in an ever-increasing degree 
the higher kinds of service, and not merely increase 
the run upon the lower. We have seen that 
machinery will always easily overtake the demand 
for most necessaries (though the limits of the food 
and fuel supplies, not to speak of room for houses 
and gardens, must always be less elastic) ; and that 
the true cure for over-supply of labour is primarily 
restraint of population, and secondarily demand for 
artistic products. Given the recognition of these 
principles, will the pension system, with its security 
of life, suffice to make them work ? Will the classes 
employed and pensioned by the State be safe to pro- 
vide as well among them for the maintenance of 
literature, art, and science, as society does at present ? 
I would answer that, without any such premature 
extension of public emplo}nnent as would be a social 
danger comparable to the present moral evil of a 
large class of idle rich, the public service will neces- 
sarily tend to provide more and more for the fostering 
of the higher standards of consumption alongside of 
the raising of the standards of the workers. The 
education sj'stem must clearly be improved, till the 
higher grades are relatively as fully available in the 
public interest as the lower. And as the official 
pension system is already in force in the public 
service generally, and is bound to be extended rather 
than dropped, it will come about that the great class 


engaged in all kinds of teaching, like the other classes 
of public servants (likely ere long to include, as before 
noted, the employees on the railway and gas and 
water systems), will be in a good position to consume 
the higher forms of literary and artistic service, 
leaving the supply of these services (as apart from 
public teaching) to the free operation of the present 
supply-forces. In this, as in commercial matters, 
there need be no fear of lack of supply, if there is 
demand. And on the lines specified, demand will, 
I think, be forthcoming. Indeed, it is safe to say 
that on such lines of evolution, demand for the higher 
intellectual services will be relatively much larger 
than it is at present. It is one of the darkest features 
of the present system that the ideals or standards of 
consumption on the intellectual side rise so slowly, nay, 
even seem at points to sink relatively to the material 
possibilities. So far from there being, as Cairncs 
implied, a danger that the more a State is socialised 
the greater will be the risk of a decline of the arts 
and sciences, it is inconceivable that any State more 
socialised than ours should in future provide worse 
for the advancement of these than we are doing at 
present. 1 

Throughout all this argument, be it remembered, 
there is assumed the general practice of restraint of 

1 The prospects of literature under a more socialised 
have, I think, been even under-estimated from a professedly social- 
ist point of view, while those of art and science have not been 
clearly enough set forth. Sue the articles <»n "Art and Litera- 
ture under Socialism '' in the New Revieio for January, L891, 
by Messrs. Morris & Salt. 


births. Needless to say, this must hold good for the 
more cultured as well as for the less ; and this re- 
straint alone will serve to improve the situation for 
the " upper " (there will still in a sense be upper and 
lower, or more and less cultured) as well as for the 
" lower " classes. At present the pressure of the com- 
petitive saving system is much intensified by the 
high rate of increase among the middle-classes, for 
fathers naturally want to provide for their daughters, 
and to start their sons in life with " capital." When 
the English middle-classes learn the lesson of rational- 
ism in life, the ideal of endowed idleness will be the 
more easily superseded because the opportunities of 
worthy and refined employment will be proportionally 
much greater as the number of helpless middle-class 
scions of both sexes relatively falls off. Thus in time 
may be attained the complete euthanasia or elimina- 
tion of that grave social evil, the idle class ; the com- 
munity safeguarding otherwise, step by step, all the 
compensations which the existence of that class lias 
hitherto involved. Of course the complete elimination 
will mean the socialisation of all the present sources 
of interest on invested money-credit. 


But already we have gone, for scientific purposes, 
quite far enough in anticipation of future possibilities ; 
and our exposition must end on the strictly practi- 
cal plane of present day economics. The practical 
doctrine of this second part of our inquiry, over and 
above restraint of population, is summed up in (1) 


reform of taxation to the primary end of paying off 
the National Debt ; (2) public works, to employ the 
labour that tends to be thrown idle as a result of the 
liquidation of the Debt ; (3) a national system of 
pensions. The last point to be considered is the 
method of the pension system in the light of the 
economic principles before established. 

It speedily appears that the old idea of a National 
Insurance Fund is out of the question. Even apart 
from any perception of the general Fallacy of Saving, 
it is widely admitted that such a fund would be un- 
workable. It is hard enough for private Insurance 
Companies to go on investing their funds profitably, 
without the Government attempting to compete with 
them as an investor on a gigantic scale. But further, 
it is being widely recognised that the collection of 
premiums, or specific payments towards pensions, 
would be an enormously difficult matter ; and al- 
ready, alongside of the schemes which specify such 
charges and payments, there are others which frankly 
propose to make a national pension charge without 
exacting payments from individual workers. Such 
are the proposals of Mr. R. P. Hardy l and Dr. 
Hunter. 2 

Here, however, there is a risk of such misconception 
as is set up by the phrase "free education." Indeed, 
there being a specific education-rate, the risk of mis- 
conception is greater. At the present moment, the 
working-classes pay, relatively to their mere money 
income, a very large proportion of the national taxa- 

1 Pamphlet on Old Age Pensions (Knighl A ('■'., L891). 
- Articles in Weekly Dispatch, 


tion, of which so great a mass goes to pay interest on 
national debt. Even if they were not thus taxed in 
respect of their consumption, they obviously contribute 
the great mass of the really useful services by which 
all incomes are built up ; but as a matter of fact they 
positively pay out of their wages a large part of the 
national revenue. A sound system of taxation would, 
remove much of their present burden, by making an 
end of the taxes on articles of food. But if a pension 
system can be established, it may be on many grounds 
expedient to impose a direct income-tax on the work- 
ing as on other classes. Such a tax would, represent 
their specific contribution to the national burdens, and 
would constitute by far the best quid pro quo as 
against their pensions. It would be a universal tax as 
against a universal obligation ; and it would be impos- 
sible even for empirics then to speak as if the workers 
drew pensions without doing anything to pay them. 
No doubt there would still be outcry on the part of the 
monied classes. 'So deeply rooted is the notion that 
labour subsists chiefly by the bounty of capitalists, 
that in the recent case of the Scotch railway strike 
Mr. Lang, strong in intuitive sociology, could come 
forward to satirise those who sympathised with the 
strikers, as being generous at the expense of the 
shareholders. It did not occur to Mr. Lang that to 
sympathise with the shareholders was to be generous 
at the expense of the men, whose lives were spent in 
earning dividends for the shareholders. But while 
Mr. Lang's view will of course be popular among 
shareholders, we may hope that even in that class 
there are now many who deriving their sociology 


from other than belletrist sources, can see that it is 
industry which pays dividends, and not dividends 
that pay industry. 

That the workers would themselves readily acquiesce 
in such a course seems the more likely in view of the 
favour with which the Bismarckian system of national 
insurance is regarded by them in Germany, where the 
workmen's contribution is exacted through the em- 
ployer. That in itself seems a cumbrous and vexa- 
tious course under any circumstances, and would 
certainly not be easy of introduction in England. 
But inasmuch as the workers pay educational and 
other rates already, there need be little difficulty in 
charging them with a national rate, which it would be 
so clearly worth their while to pay, and which more- 
over ougdit to be a less burden than that which at 


present presses on them in respect of the taxes on 
their food and their poor " luxuries." 

The great matter is that there shall be a general 
abandonment of the established delusion that the uni- 
versal saving of sums of money-credit, as an outcome 
of non-consumption of the products of industry, can 
ever lead to all-round well-being. And therefore it is 
that I have stipulated for the limitation of the pension 
in cases where the pensioner has an income from in- 
vested savings. It must be admitted, however, that 
this stipulation can hardly be insisted on so long as 
the pension paid is only a few shillings a week, as is 
at present proposed. The question, therefore, need 
not be politically argued on this line at present. It 
wid properly arise first in connection with those 
official pensions which are sufficient in themselves to 


sustain life in comfort. These are as yet mainly re- 
stricted to the upper grades of the public service ; and 
to raise the principle in that direction will doubtless 
give much offence at the outset. But if there be any 
validity in the foregoing economic analysis, raised the 
question must be ere very long. And we may hope 
that the natural tendency to increase the small pensions 
first asked for will be a force which will necessitate 
the reconsideration of the received economic doctrine. 
Legislators will never agree to a national system of 
comfort-giving pensions while the theory of saving 
holds its ground. That theory rests, as we have seen, 
on unenlightened self-interest. But inasmuch as a 
system of comfort-giving pensions would coincide 
with the impulse of economically enlightened self- 
interest, it seems reasonable to conclude that, once 
established in a democratic State, it will be so de- 
veloped as to undermine or override the contrary 
policy, which will, besides, be scientifically discredited 
step for step with the successful working of the 
rational regimen of advancing consumption. 


Printed by Cowan 6° C#. , L united, Perth, 



Abstinence, Doctrine of, 63 
Art and Industry, 113 

Bagehot, 84 
Beaulieu, M. eroy, 2 
Bifield, 1 1 1 
Bills, 84 
Blanqui, 32 

Bphm-Bawerk, 63, 64, 75-S3 
Booth, C, 129 
Bradlaugh, 124 
Brougham, 33-35 

Cairnes, Professor, 33, 5&> 

61-64, 79, 141 
Capital, Definitions of, 3, 8, 30, 

43, 66, 72-91, 106, 109, in 

Waste of, 94 

Chalmers, Dr., 5, 29, 37, 47, 54, 

94, 103, 123 
Class Interests, 116, 117 
Coleridge, 93 
Consumption, 90, 103, 106- 118, 

Cossa, 33 
Credit, 77, 83, 86 

Depression in Trade, 112 
Destutt de Tracy, 33 
Droz, 69-70, 75 

Fawcrtt, 57-58 

France, Saving in, 70 

Garnier, M. Joseph, 6S-9 
Germany, Pensions in, 145 
Gide, 75 
Gluts, 41, 98-100, 113 

Hardy, R. P., 143 

Hermann, 65 

Hume, 27 

Hunter, Dr. W. A., 129, 143 

Improvidence, 2 
Insurance, National, 143 
Investments, Foreign, 104 
Rationale of, 133-4 

JEVONS, 56, 57 

Kuhnast, 77 

Land Nationalisation, 139 
Lang, A., 118, 144 
Lauderdale, Earl of, 2S-38, 80, 

91, 92 
Loan Fund, 84 
Loch, C. S., 130-5 

M'CULLOCH, 29, 32, 33, 37, 

40-41, 69 
Macleod, 77-8, 82, 83-5, 87, 1 10 
Maitland, E., 3-6. 



Malthus, 29, 33-37, 40 
Markets, Extension of, 9 
Marshall, Professor, 59-60,88-9, 

95, 135 
Marx, 58, 63, 64 
Mill, J. S., 5, 16, 33, 42-57, 

72-3,86-8,94,95,98-9, 102-4, 


— ; James, 29, 33, 43, 73-4 

Misproduction, 97 

Moffat, R. S., 54, 117, 123 

Montesquieu, 26 

Morley, J., 128 

Mummery and Hobson, 98, 105 

National Debt, 5, 29, 37, 85, 

121, 125-7, 138 
North, Dudley, 41 

Over-production, 41,98-101, 
1 12 

Parsimony (See Saving) 

Pauperism, 130-5 

Pensions for Old Age, 114-116, 

Physiocrats, 23, 25 
Population Question, 90, 113- 

115, 125-128, 135-6 
Price, Professor Bonamy, 1 
Production, Process of, 108 
Profits and Saving, 2 


" Realised Property," 4 
Ricardo, 29, 32, 74, 91-2, 98, 

Roscher, 64-5 
Ruskin, 93, 123 

Saving, Nature of, 7, 30, 35, 46, 
72-4, 81, 85-90,93, 106, 115, 

Saving, Doctrine of, 1, 12-23, 

24, 46, 68-71, 79-90 
Say, J. B., 29, 32, 33, 39, 41, 

73, 77, 82, 98, 100 
Scrope, Poulett, 63 
Self-interest, Delusions of, 10 
Senior, N. W., 29, 63 
Sidgwick, Professor, 6-8, 5 8-9, 

84-7, 135 
Sismondi, 29, 38-40, 99, 123 
Smart, W., 76 
Smith, Adam, 12-26, 30-35, 41, 

76, 77, 102, 116-117 
Socialism, 61, 71, 79, 139, 

Spencer, Herbert, 2 
Spendthrift, Theories as to, 13- 

22, 67-9, 131 
Spending, Effects of, 17-21, 53, 

60, 79> 89, 95, "3, 131 
Spinoza, 64 

State Employment, 122, 124 
Stephen, Leslie, 57-8, 112 
Stirling, P. J., 91, 99, 11S 
Sumner, Bishop, 41 

Taxation, 138 

Turgot, 24-25, 72, 76, 77, 78 

Yerri, Count di, 33 
Voltaire, 26 

Wage-fund Theory, 5, 107 
Wakefield, 103 
Walcker, 65-67, 104 
Wealth, Public, 17-21, 31, 91-3, 

Webb, S., 129 
Workers, Saving by, 15, 18, 


Interest of, 95-7 

Position of, 102, 114 



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" Can hardly fail to suggest to all readers several new and pregnant reflections on 
the subject." — Anti-Jacobin. 

23. Principles of State Interference. D. G. Ritchie, M. A. 

" An interesting contribution to the controversy on the functions of the State."— 

Glasgow Herald. 

29. German Socialism and F. Lassalle. W. H. Dawsoh. 

" As a biographical history of German Socialistic movements during this century 
it may be accepted as complete."— British Weekly. 

80. The Purse and the Conscience. H. M. Thompson, B. A. (Cantab.). 

" Shows common sense and fairness in his arguments." — Scotsman. 

81. Origin of Property in Land. Fcstel de Coulanges. Edited, with as 
Introductory Chapter on the English Manor, by Prof. W. J. Ashley, M.A. 

" His views are clearly stated, and are worth reading." — Saturday Review. 

82. The English Republic W. J. Linton. Edited by Kineton Parses. 

" Characterised by that vigorous intellectuality which has marked his long life of 
literary and artistic activity."— Glasgow Herald. 
33. The Co-Operative Movement. Beatrice Potter. 

" Without doubt the ablest and most philosophical analysis of the Co-Operative 
Movement which has yet been produced." — Speaker. 

84. Neighbourhood Guilds. Dr. Stanton Coit. 

"A most suggestive little book to anyone interested in the social question." — 
Pali Mall Gazette. 

85. Modern Humanists. J. M. Robertson. 

" Mr. Robertson's style is excellent — nay, even brilliant — and his purely literary 

criticisms bear the mark of much acumen." — Times. 

36. Outlooks from the Hew Standpoint. E. Belfort Bax. 

"Mr. Bax is a very acute and accomplished student of history and economics.'' 

— Daily Chronicle. 

87. Distributing Co-Operative Societies. Dr. Lcigi Pizzamiglio. Edited by 

F. J. Snell. 

" Dr. Pizzamiglio has gathered together and grouped a wide array of facts and 

statistics, and they speak for themselves."— Sptalier. 

38. Collectivism and Socialism. By A. Nacquet. Edited by "W. Heaeord. 

" An admirable criticism by a well-known French politician of the New Socialism 

of Marx and Lassalle."— Daily Chronicle. 


99, The London Programme. Sidney Webb, LL.B. 

" Brimful of excellent ideas."— Anti-Jacobin. 

40. The Modern State. p AUL Leboy Beaulieu. 

"A most interesting book; well worth a piace in the library of every so-ial 
inquirer."— A". £. Economist. 

41. The Condition of Labour. Henry George. 

" Written with striking ability, and sure to attract attention, — Newcastle ChrcmicU 

42. The Revolutionary Spirit preceding the French Revolution. 

Felix Eocquain. With & Preface by Professor Huxley. 
' The student of the French Revolution will find in it an excellent introduction to 
the study of that catastrophe."— Scotsman. 

43. The Btudent'B Marx. Edward Avelino, D.Sc: 

"One of the most practically useful of any in the Series."— Glasgow Herald. 

44. A Short History of Parliament. B. C. Skottowe. M.A. (Oxon.). 

" Deals very carefully and completely with this side of constitutional history."— 

45. Poverty : Its Genesis and Exodus. J. G. Godard. 

" He states the problems with great force and clearness "-N. B. Economist. 

46. The Trade Policy of Imperial Federation. Maurice H. Hervey. 

"An interesting contribution to the discussion.'— Publishers' Circular. 

47. The Dawn of Radicalism. J. Bowles Daly, LL.D. 

" Forms an admirable picture of an epoch more pregnant, perhaps, with political 
mstrnction than any other m the world's history "—Daily Telegraph 

48. The Destitute Alien in Great Britain. Arnold White ; Montague Crackan- 

thorpe, Q.C. ; W. A. M'Arthur, M.P. ; W. H. Wilkins, &o. 
"Much valuable information concerning a burning question of the day."— Timet. 

49. Illegitimacy and the Influence of Seasons on Conduct. 

Albert Leffingwell, M.D. 
We have not often seen a work based on statistics which is more continuously 
interesting."— Westminster Review. 

50. Commercial Crises of the Nineteenth Century. H. M. Hyndhian. 

'One of the beat and most permanently useful volumes of the Series."— Literary 

51. The State and Pensions in Old Age. J. A. Spender and Arthur Acland, M.P. 

" A careful and cautious examination of the question. "—Time*. 

62. The Fallacy or Saving. John M. Eobertson. 

" A plea for the reorganisation of our social and industrial system 'Speaker. 

63. The Irish Peasant. Anon. 

' A real contribution to the Irish Problem by a close, patient and dispassionate 
Investigator."— Daily Chronicle. 
54. The Eifect3 of Machinery on Wage3. Prof. J. S. Nicholson, D.So. 

" Ably reasoned, clearly stated, impartially written.'— Literary World. 
65. The Social Horizon. Anon. 

'A really admirable little book, bright, clear, and unconventional."— Dailu 

56. Socialism, Utopian and Scientific. Frederick Engels. 

" The body of the book is still freBh and striking."— Daily Chronicle. 

57. Land Nationalisation. A. E. Wallace. 

The most instructive and convincing of the popular works on the subject."— 
National Reformer. 

58. The Ethic of Usury and Interest. Eev. W. Bltssard. 

"The work is marked by genuine ability."— North British AgritxdturatUU 

59. The Emancipation of Women. Adele Ckepaz. 

" By far the most comprehensive, luminous, and penetrating work on this question 
that I have yet met with."— Extract from Mr. Gladstone's Preface. 
80. The Eight Hours' Question. John M. Eobbktson. 

..4 v "y cogent and sustained argument on what is at present the unpopular 
side. — Timet. 

61. Drunkenness. George E. Wilson, M.B. 

" well written, carefully reasoned, free from cant, and full of sound mom."— 
National Observer. 

62. The New Reformation. Eamsden Eatmfohth. 

"A striking presentation of the nascent religion, how best to real:;-.* th.j personal 
and social ideal."— Westminster Review. 
63 The Agricultural Labourer. T. E. Kebbkw 

"A short nummary of his position, with appendices on wages, educution allot- 
ments, etc., etc." 

64. Ferdinand Lassalle as a Social Reformer. E. BKUNBTai*. 

" A worthy addition to the Social Science series."— North British Bconn~ni*t 

80CIAL SCIENCE SERIES— (Continued). 

66. England'? Foreign Trade In XlXth Century. A. L. Bowley 

" Full of valuable information, caretully compiled."— Time*. 

66. Theory and Policy of Labour Protection. Dr. Schaffle 

" An attempt to systematize a conservative programme of reform."— M an. Guard 

67. History of Rochdale Pioneers. G. J. Holyoake 

" Brought down from 1844 to the Rochdale Congress of 1892."— Co-Op. Sews. 
69. Rights of Women. M. Ostragorski 

"An admirable storehouse of precedents, conveniently arranged." — Daily Chron 

69. Dwellings of the People. Locke Worthington. 

"A valuable contribution to one of the most pressing problems of the day." — 
Daily Chronicle. 

70. Hoars, Wages, and Production. Dr. Brentano 

"Characterised by all Professor Brentano's clearness of style."— Economic RevUw 

71. Rise of Modern Democracy. Ca. Borgeaud, 

"A very useful little volume, characterised by exact research." — Daily Chronicle. 

72. Land Systems of Australasia. Wm. Epps, 

" Exceedingly valuable at the present time of depression and difficulty." — 
Scots. Mag. 

73. The Tyranny of Socialism. T?es Guyot. Pref. by J. H. Levy. 

"M. Guyot is smart, lively, trenchant, and interesting." — Daily Chronicle. 

74. Population and the Social System. Dr. Nith 

"A very valuable work of an Italian economist." — West. Bet. 

75. The Labour Question. T. G. Spyers 

" Will be found extremely useful."— Times. 

76. British Freewomen. C. C. Stopes. 

" The most complete study of the Women's Suffrage question."— English Worn. Rev 

77. Suicide anb Insanity. Dr. J. K. Strahan. 

" An interestesting monograph dealing exhaustively with the subject."— Times. 

78. A History of Tithes. Rev. H. W. Clarke 

" May be recommended to all who desire an accurate idea of the subject."—!). Chron 

79. Three Months in a Workshop. P. Gohre, with Pref. by Prof. Ely 

" A vivid picture of the state, of mind of German workmen."— Manch. Guard. 

80. Darwinism and Race Progress. Prof. J. B. Haycraft 

" An interesting subject treated in an attractive fashion." — Glasgow Herald. 

81. Local Taxation and Finance. G. E. Blunden 

82. Perils to British Trade. E. Burgis. 

83. The Social Contract. J J. Rousseau. Edited by H. J. Tozes 

84. Labour upon the Land. Edited by J. A. Hobson, M.A 

85. Moral Pathology. Arthur E. Giles, M.D., B.Sc. 

86. Parasitism, Organic and Social. Massart and Vandebvbldb. 

87. Allotments and Small Holdings. J. L. Green. 

88. Money and it3 Relations to Prices. L. L. Price. 

89. Sober by Act of Parliament. F. A. Mackenzie. 

90. Workers on their Industries. P. W. Galton. 

91. Revolution and Counter-Revolution. Karl Mars. 
92 Over-Production and Crises. K. Rodbertus. 

93. Local Government and State Aid. S. J. Chapman. 

94. Village Communities in India. B. H. Baden-Powell, M.A., CLE. 

95. Anglo-American Trade. S. J. Chapman. 

96. A Plain Examination of Socialism. Gust ate Simonson, MA., M.D. 

97. Commercial Federation & Colonial Trade Policy. J. Davidson, M.A., Phil.D. 


1. Life of Robert Owen. Lloyd Jones. 

2. The Impossibility of Social Democracy: a Second Part of " The Quintessence 

of Socialism ". Dr. A. Schaefle. 

3. Condition of the Working Class in England in 1844. Frederick Engels. 

4. The Principles of Social Economy. Yves Guyot. 

5. Social Psace. G. von Schultze-Gaevernitz. 

6. A Handbook of Socialism. W. D. P. Bliss. 

7. Socialism: its Growth and Outcome. W. Morris and E. B. Bax. 

8. Economic Foundations of Society. A. Loria. 


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